DOCUMENT OF THE WORLD BANK & UNITED NATIONS WORLD FOOD PROGRAM

RECONSTRUCTING IRAQ WORKING PAPER NO. 3

A STUDY OF FOOD GRAIN MARKET IN IRAQ

Neville Edirisinghe

June 2004

Papers included in the Reconstructing Iraq series represent work in progress and are not formal publications of the World Bank or other agencies involved in their preparation. These papers represent preliminary and often unpolished results of country analysis and research. Circulation is intended to encourage discussion and comments; citation and the use of this paper should take account of its provisional character. The findings and recommendations are entirely those of the authors and should not be attributed to The World Bank, its partner agencies, its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Middle East and North Africa Region

Acknowledgements

This report was made possible by the advice, support and assistance of several persons. I wish to place my gratitude to all of them. In particular, I appreciate the vision of Mr. Khaled Adly, Regional Director, WFP Regional Bureau for the MiddleEast, Central Asia and Eastern Europe, the vigorous efforts of Mr. Werner Kiene, WFP Representative to the Bretton Woods Institutions in Washington D.C., and the strong support of Mr.Torben Due, Country Director, WFP Iraq. Their efforts resulted in a process of effective collaborative work between the World Bank and the World Food Programme in assessing the nature and type of assistance that the international community could provide to Iraq, particularly in the area of food security. Mr. Deepak Dasgupta and Ms Susan Razzaz of the World Bank provided their unstinted support to launch and carry out a productive process of collaboration. I also wish to acknowledge with gratitude the analytical guidance given by Mr. Paul Dorosh of the World Bank. Throughout the process, Mr. John McHarris, Regional Programme Officer, VAM provided valuable guidance and assistance. I wish to thank all of them. This study, which was carried out from the WFP’s Iraq Planning Unit in Cairo, would not have been possible without the support of Mr. Tarek El-Guindi, Chief, Iraq Planning Unit and his staff. The Unit made available all its survey, monitoring and secondary data on Iraq. In particular, I am grateful to Mr. Hazem Almahdy, chief of the VAM section in the Iraq Unit for the enormous assistance and advice he provided throughout the study. I also wish to thank Ms. Romina Waldermarian and Mr. Imed Khanfir, who provided valuable research and analytical assistance. I owe much gratitude to Mr. Mutaz Al Mufti of Baghdad, Iraq, who helped in gathering data for the study working under very difficult conditions in Iraq. I also wish to acknowledge the unstinted administrative and sectretarial assistance provided by Ms Rania El Dessouky and Ms Sherihan Mandour.

Table of contents

Executive summary

1. Introduction

Objectives of the study Some salient features of the food grain markets The consumer base

2. Cereal supply and demand: the big picture

Trends in cereal balance Cross-border trade Sources and uses of food grain: a summary balance

3. Supply of cereals

A. Cereal supplies from domestic agriculture Introduction Production base Production trends Regional production Future prospects

B. Cereal imports

4. Consumption demand A. Role of the Public Distribution System

PDS background and operations Nutritional considerations

B. Non-ration cereal demand C. Non-cereal demand

5. Food Price behavior

Market prices Deflated prices Seasonality Food grain market integration

6. Market infrastructure

PDS operations Grain silos and mills Transport

7. Conclusions References Appendix Table 1: Iraq Wheat production, area and yield 1961-2003

Appendix Table 2: Iraq Rice production, area and yield 1961-2003

List of Tables

Table 1: Population of Iraq 1997 and 2003 Table 2: Cereal balance Sheets 1984/85-1986/89, 1995/96, 1997/98, 2000/01, 2003/04 Table 3: A summary balance of sources and users of food grain Table 4: Average production, area and yield of wheat, and rice 1961-2003, different periods Table 5: Growth rates of wheat and rice production , yield and area harvested, 1961- 2003 different periods Table 6: Average wheat area and production in regions of Iraq, 2002-2003 Table 7: Wheat and rice yields in Iraq and neighboring countries Table 8: Wheat and rice imports under the Oil for Food Programme 1997-2002 Table 9: Consolidated Plan and categorized list of foodstuffs, soaps and detergents for Public Distribution System, Phase XIII Table 10: Per capita food supply (average 1984-86, 1987-88 and 1989-1991) Table 11: Value of food rations to beneficiaries, average 2000-2002 Table 12: Nutrient content of rationed foods, June 2003 ration Table 13: Child malnutrition rates, 2003 (%) Table 14: Average per capita monthly consumption of cereals (Kg) Table 15: Average prices, price variation, minimum and maximum prices of cereals 1998-2003 Table 16: Nominal and deflated cereal prices 1998-2002 Table 17: Average prices, variation, minimum and maximum of non-cereal foods 1998-2003 Table 18: Average inter-cluster cereal price correlations 1998-2003 Table 19: Inter-cluster correlation matrix for wheat flour 1998-2003 Table 20: Inter-cluster correlation matrix for imported rice 1998-2003 Table 21: Inter-cluster correlation matrix for Iraqi rice 1998-2003 Table 22: Wheat and rice storage capacity and wheat milling capacity

List of Charts

Chart 1: Iraq food crops calendar Chart 2: Cereal imports 1980-2000 Chart 3: Moving averages of wheat flour prices 1998-2003 Chart 4: Monthly wheat flour prices,1998-2003 Chart 5: Moving averages of imported rice prices 1998-2003 Chart 6: Monthly imported rice prices, 1998-2003 Chart 7: Moving averages of Iraqi rice prices 1998-2003 Chart 8. Monthly Iraqi rice prices, 1998-2003 Chart 9: Nominal and deflated prices of wheat flour 1998-2002 Chart 10: Nominal and deflated prices of imported rice 1998-2002 Chart 11: Nominal and deflated prices of Iraqi rice 1998-2002 Chart 12: Seasonality in Wheat flour prices: all Iraq May 1998-Dec 2003

Chart 13: Seasonality in Iraqi rice prices: all Iraq: May 1998-Dec 2003 Chart 14: Monthly milling capacity versus requirements by governorate

List of maps

Map 1: Distribution of population in Iraq Map 2: Regional wheat production Map 3: Wheat storage capacity Map 4: Location of wheat and rice storage facilities Map 5: Regional milling capacity

Executive summary

Objectives of the study1 The objective of the study is to understand the functioning of Iraq's food grain market and the relative roles of the public and private sectors. Its tasks are to obtain an analysis of available secondary data on domestic supply and demand of food grain using estimates of production, imports, government distribution and consumption and examine available price data to assess the extent of price variations and the extent to which markets appear to be integrated. This study forms the first phase of a paper on Iraq's food grain markets, which is one of the background papers for the preparation by the World Bank of a policy brief on social protection and options for food security in Iraq.

Introduction

1. Social protection concerns, in particular those related to providing a food safety net to the population, have had a dominant influence over the food marketing system in Iraq. The safety net, called the Public Distribution System, PDS, provides monthly rations of food (and soap and detergents) to all the Iraqis. PDS, which was started as a response to sanctions after the Gulf War, was further enhanced and supported by the UN Oil-for-Food Programme (OFFP) since 1997. Without the PDS, nutritional welfare of the bulk of the population would have been at stake. Because of the PDS and the general authoritarian role of the state in the economy, domestic production and food marketing system has become state-dependent to a large extent.

2. Food marketing has to cater to a large population, estimated to be over 27 million

in 2003. The consumer base is also largely urban accounting to about 75 percent of the population.

Food grain supply and demand: the big picture 3. Cereals, dominated by wheat flour, are most important in the Iraqi diet,

accounting for about 60 percent of the average energy supply. Cereal (wheat and rice) availability for food use varied between 121 kg/capita/year and 191 kg/capita/year, according to Food Balance Sheets available for several years from 1984 to 2003. Prior to sanctions and after OFFP, cereal imports have accounted for over 70 percent of the availability for food use. Domestic production of all cereals recorded the highest level in 2003/04 crop year due to favorable weather and a correction for past underestimation of production. Availability of food rations that provide 9 kg of wheat flour and 3 kg of rice per person per month, meeting over 75 percent of cereal needs, have resulted in excess availability of

1 The study was jointly sponsored by the World Bank and the World Food Programme

wheat, part of which are exported across the borders to neighboring countries (Turkey, Iran, Syria, Jordan).

4. A summary of the country’s food grain balance in relation to sources and users

indicate that approximately 60 percent of the total grain supply is dependent on imports with domestic production accounting for the balance. Ration consumption that is supported by public sector interventions account for 60 percent of the total grain availability implying that 40 percent of the grain flows is in the domain of the private sector, with the farm-level uses accounting for 10 percent and private trading accounting for 30 per cent. In other words, the private sector is already playing a significant role in the food grain market in an environment of state dominance in the sector. This should help minimize any risks of market disruption or destabilization in a grain market liberalization scenario.

Supply of cereals

5. Domestic wheat production averaged a little over one million tons during the period 1961 to 2003. However, wheat production has been erratic; there is no significant trend observable during this period. Rice production varied between 60,000 and 380,000 tons. Low productivity and lack of growth are problems facing the wheat sector. Given the land constraints, increasing productivity to be in line with the regional yield levels is key to increasing local wheat production. Wheat sector also faced depressed market prices due to availability of large quantities of heavily subsidized ration wheat flour in the market. There were also serious shortages of inputs and spare parts for machinery throughout the sanctions period. The efficacy of the present policy of providing input subsidies needs re-examination vis-à-vis the role of better output prices to increase profitability. A new policy framework that allows the sector’s resource allocation process to be determined by market forces seems necessary to help the sector’s development; such a policy framework has to go hand in hand with policy reforms on the PDS.

6. Since the early 1960s, Iraq has depended on food imports. Highest imports were

seen during the mid 1980s; the lowest during the sanctions until 1997 when imports increased substantially because OFFP allowed food imports using oil export revenues. The annual average of wheat and rice imports during OFFP was 2.78 million tons of wheat and 0.87 million tons of rice. If the PDS were to continue with current levels of entitlements the total requirements of wheat and rice would be 4.5 to 5 million tons in 2004. PDS has purchased about one million tons of wheat from the successful 2003/04 domestic harvest. The balance requirements of 2004 are likely to be met with imports coming from the renegotiated final contracts under the former OFFP. Private imports have been virtually negligible, given the large magnitudes of PDS disbursements to all consumers and also the availability of domestic wheat and rice. Nonetheless, minimal imports have come from neighboring countries like Syria, Jordan and Saudi Arabia especially to meet the demand for high-grade flour for confectionery and special breads.

Consumption demand 7. Market demand for cereals and some of the major non-cereal consumption items

(sugar, oil, pulses) is highly dictated by the PDS; PDS exerts both a supply effect and an income effect with direct consequences for the determination of market prices and trading activities. PDS rations have been made available to all Iraqis and foreign residents in Iraq. Allocations under OFFP for PDS came in six-monthly phases. Under Phase XIII in 2003 the value of the “planned” PDS rations was about $5.19 per person per month. The actual rations in July 2003 had an implicit value of $3.41 under prevailing market prices (which are directly influenced by the ration availability itself). For a family of seven persons (approximately the average household size), this meant an income of about $24 or about 37,000 Iraqi Dinars (ID) at the exchange rate available in mid-2003. An adult beneficiary is allowed 18 kg of ration foods and an additional 0.75 kg of soap and detergents after a nominal payment of 250 ID ($0.16). The annual cereal entitlement of 144 kg is about 75 percent of the average per capita cereal availability for consumption during 1984-1991 (pre-sanctions) period or about 80 percent of the availability in the post-1997 period. Sugar, pulses and oil rations were also similarly high in relation to levels of consumption observed in the past.

8. Since the inception of OFFP attempts have been made to increase the energy and

protein content of the entitlements, reaching an average of about 2150 kcals/person/day and 45 g of protein/person/day just prior to the war in 2003. The income effect of subsidies would have been more on non-ration items required for a diversified diet (vegetables, fruits, eggs, milk, cheese) than for further consumption of rationed items. The average open market price of wheat flour in Iraq markets was about $120 per ton, whereas the average import price during the same period may have been $200-$225, according to OFFP figures.

9. The demand for cereals over and above the ration entitlement (9 kg wheat flour

and 3 kg rice per person per month) could be about 3 kg of wheat flour and one kg of rice. In other words, the total average flour and rice requirement is estimated at 16 kg/capita/month. Accordingly, the annual total cereal requirement is about 192 kg giving a total requirement 5.3 million tons of wheat flour and rice for a population of 27.8 million people (approximate mid-2004 population). The additional demand over the rations would be 1.3 million tons. PDS beneficiaries sell a part of the rations or exchange them for bread. The quantities sold or exchanged vary by income class with the middle income and better-off classes engaging more than the poor in this practice. It is estimated that 20 percent to 30 percent of the ration is sold or exchanged. The primary reason for sale/exchange is perceived inferior quality of ration flour, although some may sell purely for earning an income to purchase other foods or necessities.

Food price behavior

10. Using monthly market prices of food commodities that have been collected by WFP since 1997, average price movements were examined in relation to four regions: the northern region, northern-central region, central region and the southern region. An analysis of 12-month moving averages of wheat flour prices clearly indicated the northern region to have operated quite separately, especially after mid-2002, when the possibility of war was in the air. All the four regions had different price levels although their movements were somewhat similar in the regions other than the northern region. In the case of imported rice, prices in the northern region were much higher than in the other regions, where the prices and the movement were virtually same in all three regions. The price behavior is about the same in the case of Iraqi rice in the three regions other than the north, where a completely different behavior is observed after about mid-2000. The northern region has a distinct political identification, a fact recognized in the PDS under OFFP, wherein the World Food programme was given responsibility for overseeing food distribution. The region also has a different trading regime that involves cross-border trade with the neighboring countries. These are some of the factors that account for the apparent segmentation of the north regional market.

11. The coefficients of variations (CV) in different years of annual prices show high

fluctuations of wheat flour prices in 1998,1999 (drought-dominant years) and 2003 (conflict year); for all years, the CV is 25 percent. Imported rice also shows high price variation in 1998 and 2003. Iraqi rice has had relatively high CVs during all years with an average CV of 39 percent. Prices deflated by the Consumer Price Index computed by the Central bank of Iraq indicated a 30 percent increase in the real price of wheat flour between 1998 and 2000 while the nominal price increase was 60 percent. Since then, real price declined by 40 percent while the decline in nominal price was only 12 percent. In the case of imported rice, real prices were in a declining trend since 1998, while nominal prices tended to fluctuate. The volatility of real price of Iraqi rice is lower than that of nominal prices.

12. The study tested the price series for any evidence of seasonality in wheat flour

prices (given the presence of a sizeable domestic wheat sector) using a seasonal price index. This index was derived by expressing the average price for each month as a percentage of a 12-month moving average of prices. The latter helps to isolate the seasonal pattern by removing the influence of cyclical price movements and long-term trends. The seasonal price index for wheat flour indicates the expected decline in prices corresponding to the domestic wheat harvesting season (May-June) with the price decline setting in somewhat prior to the harvesting period. Given the relatively low gap between the peak and trough level prices, it is unlikely that farmers/wholesalers invest to any significant degree on stock holding operations to benefit from seasonal price changes. In the case of Iraqi rice, price fluctuations are less predictable. The special role of Iraqi rice amongst food grains and the relatively small quantities that move in the market may be some of the factors that cause unpredictability in the behavior of Iraqi rice prices.

13. The high degree of state intervention in grain marketing would have an impact on the development and functioning of the markets. This issue was examined through a simple market price correlation analysis. If there is a strong relationship between the movements of a commodity price in two different markets (reflected in a correlation coefficient close to one), it could be interpreted as a situation where the two markets are integrated. When markets are integrated, supply and demand shocks in one location are transmitted to the other and the observed price differentials between the markets would arise only due to transaction costs. The degree of cereal market integration among eight regions (identified on the basis of proximity and some preliminary cluster analysis) was examined using correlation analysis based on the first differences of monthly cereal prices. Using the difference between two consecutive monthly prices rather than the observed prices themselves helps to eliminate fixed components of errors associated with price movements. Results indicated that the three northern governorates have been completely separated from the rest of markets with regard to wheat flour and imported rice and showing only minimal degree of association with the rest of the markets in the case of Iraqi rice. In the case of other markets, some pairs of markets show strong correlations in price movements but in some others the correlation coefficients are substantially below one (closer to zero). The overall picture implies that the grain markets have not functioned efficiently, which should not be surprising given the nature of state control over the grain market. Further testing for market integration require more rigorous analysis, such as tests for co-integration of markets but such analyses require longer price series (and under more stable external environment) than what is available at present.

Market infrastructure 14. The current food grain marketing infrastructure has been deeply molded by the

long-standing state-sponsored food distribution system, the PDS. PDS is operated by the Ministry of Trade (MOT) with three main companies under it performing the key functions (the State Company for Foodstuff Trading, the State Company for Grain processing and the Grain Board of Iraq). Most imported commodities for PDS arrive at Port Um-Qasir, but significant quantities also arrive over land from Turkey, Syria and Jordan. Independent inspection of commodities imported under OFFP at entry points is carried out (by COTECNA). MOT is responsible for transporting commodities from the points of entry to the programme-allocated facilities in the 15 governorates of the Center/South. There are currently 30 silos, 25 warehouses and more than 140 mills. MOT also assured delivery of commodities to the two transit WFP warehouses for the North located in Mosul and Kirkuk Wheat grain is delivered to programme-allocated silos in the various governorates of the Center/South. From the silos, wheat grain is allocated to mills in the Center/South which are working under PDS. Milled flour from the mills is collected by the flour agents of PDS for onward distribution to the beneficiaries. Wheat allocated for the North has also been milled in the Center/South and then sent to the warehouses located in the North, from where the local authorities organize dispatch to flour agents. In the fifteen governorates of the Center/South, the secondary transportation and delivery of food to beneficiaries have been

arranged through some 33,000 food/flour agents. In the North, WFP has used private transporters to move food from its transit warehouses in Mosul and Kirkuk to WFP-managed warehouses in the three northern governorates.

15. The transport of grains was done in the past taking full advantage of the rail and

river transport network. Where possible, silos have been built with the capability to receive and load cereals from railway wagons and barges. At present, due to insufficient railway capacity and non-existent river transport, the transport from the entry points is done almost exclusively by road. The virtually exclusive use of road transport increases costs, increases losses and resulted in more investments to adapt the layouts to the extensive use of trucks. Close to two important silos (Dora and Taji) new flourmills are being constructed, which will eliminate additional handling and transport demand. MOT has several service agreements with various private sector agents for a total of 4,025 trucks to augment its fleet capacity. About 50 percent of the Company’s own fleet is normally utilized to service transport demand from other state companies and ministries. Within MOT, there are several companies (Grain Board, Food Stuff, Grain Processing and General Automobile) with dedicated fleets for the transportation and distribution of food-related commodities throughout the center/south. Private sector fleets are comprised of individual operators, who are contracted through agents or are directly registered with the local warehouses and distribution facilities. The bulk of these operators are single-truck owners. The private sector fleets have continued to be the dominant force in the continuum of the various transport and distribution chains. However, the current fleet is aging, averaging over 22 years, and are increasingly becoming unreliable and not capable of undertaking long-distance trips

Conclusions

16. The source of a relatively large part of Iraq’s food grain marketing activities has

been the public distribution system. Large-scale public sector interventions in food marketing typically lead to inefficiencies and corruption. Re-sale, exchange and to some degree, export of food grain received under the PDS of food grain constitute part of the inefficiencies of the system. Apparently, a state-dominated food grain marketing system has deterred development of food markets, as evidenced in the segmentation of the markets in the North from the rest of the country and the price behavior in other markets that does not reflect adequate integration of regional markets. With the removal of sanctions the justification of public sector distribution of food has lost its relevance. Handing back food marketing to the open market, as has been the case prior to sanctions, will augur well for reducing the inefficiencies associated with the present system.

17. However, a part of the PDS will have to continue for sometime to come given the

economic, social and political imperatives to have a food-based safety net for a population where a substantial section has been impoverished since 1990. Preliminary results of a WFP study indicate the proportion of the population in poverty to be 50 percent and 25 percent of the population is highly dependent on

government food rations – hence, highly vulnerable to food insecurity if transfers were to be withdrawn.

18. There is scope and the need to release a part of the market share that PDS

presently holds with its universal subsidy scheme. A targeted PDS will not only increase private sector’s market share in the food markets, it will also increase efficiency of the PDS itself. Instituting a universal food transfer programme was sanctions-driven. Sanctions and authoritarian rule are no more and the country is in dire need to work towards rapid economic growth. Present conditions call for a targeted safety net, whose objective would be to assure minimum nutritional welfare to the population that is most vulnerable to food insecurity. If this objective were to be achieved while having a universal programme (as now), it requires at least 75 percent more expenditures to transfer a given amount of nutrients to the target population, than the expenditures that would be incurred in a targeted programme. Savings from a targeted programme could well be used in pro-poor investments to improve, education, skills and economic infrastructure in poor regions.

19. The targeted programme itself could be geared to involve the private sector

directly to provide the required services including imports, storage, milling and distribution. Cash transfers to targeted beneficiaries, instead of food commodities, will eliminate the need for the state to be involved in commodity marketing and the markets will be able to respond to the demand for food grains which cash incomes will generate.. However, the safety net options, such as cash transfers, need careful evaluation especially in relation to potential loss of nutritional benefits to the most vulnerable groups, such as women and children.

20. Over 12 years of food market operations coming predominantly under state

control and insufficient availability of resources for development of marketing infrastructure have resulted in having only a thin spread of facilities (equipment, machinery, banking, credit). A comprehensive assessment of the current facilities and the investment needs for rehabilitation, expansion and modernization is a pre-requisite for any market development policy formulation.

21. At present, the private sector is handling about 30 percent of grain marketing.

This should give the confidence that the private sector could take over added responsibility, but transferring such responsibility has to be cautiously undertaken, given the dilapidated physical infrastructure and a highly inadequate marketing services facilities (banking, credit, regulatory framework) presently in place. A breakdown in the food transfer-marketing system is the worst thing that could happen in the transitional situation that Iraq is facing now. Comprehensive short term and medium term planning involving complete identification of constraints and bottlenecks and instituting the appropriate legal and regulatory structures (quality controls, consumer protection) is required prior to affecting a transition to liberalized markets, that should ideally be gradual.

22. Improving marketing efficiency may entail large-scale public sector investments

for infrastructure development; for example development of the UMM Qasr port,

highways and waterways. Some investments are already in place, for example, for rehabilitation and upgrading of the port.

23. Policy changes toward market liberalization, safety net provision and

infrastructure development have to be accompanied by a strategy for capacity building and results-based monitoring. A coordinated effort by the donors, international agencies and other development partners for capacity building will be a useful initiative in this direction.

24. Domestic agriculture has had a lackluster performance especially after the

initiation of the oil-for-food-programme. Universal provision of subsidized food grains may have been one of the many reasons for this situation. A well-targeted PDS will increase market demand for food grains (cash transfers would do this even more), which should have a salutary effect on cereal prices, and hence on farm profitability. Such a policy change by itself will not maximize domestic agricultural output. There are other policy issues, such liberalization of input and output markets that need attention. There is a strong need for better coordination of food policy formulation and implementation, which has to be supported by an institutional structure at the highest levels of authority.

A study of food grain market in Iraq

1. Introduction Objectives of the study This study was jointly commissioned by the World Bank and the World Food Programme as part of the preparation by the World Bank of a policy brief on social protection programmes and options for food security in Iraq in the context of the termination of the UN-sponsored oil-for-food programme in November 2003 and anticipated policy changes that would promote market liberalization and targeted safety nets. The main tasks of the policy brief are to provide background information and an assessment of the current status of the government food distribution programmes and private and public food markets and outline the options for the government of Iraq on a social protection system over the next decade. Particular attention is to be paid to the transition from the current untargeted food transfer programme to a targeted safety net programme that will enhance food security at the household level while avoiding food market price instability. Three background papers on food markets, options for social protection and cash transfer alternatives will support the policy brief. The present study forms the first phase of the background paper on food markets. 2The objective of the study is understand the functioning of the food grain market and the relative roles of the public and private sectors. Its tasks are to obtain an analysis of available secondary data on domestic supply and demand of food grain using estimates of production, imports, government distribution and consumption and examine available price data to assess the extent of price variations and the extent to which markets appear to be integrated. 3 Some salient features of the food grain market The food grain marketing system presently operating in Iraq has been largely fashioned by the state-led concerns for social protection, especially in relation to providing a food safety net to the whole population. As a response to the imposition of international sanctions on Iraq in August 1990, the government of Iraq launched the Public

2 The second phase of the paper on food markets will include assessment of the effects of alternative policies through a basic analytical model of production, trade and demand and a broad outline of an overall food policy for Iraq. 3 The study, which was carried out in the office of the WFP Iraq Unit at the WFP Regional Bureau in Cairo, Egypt, was almost entirely based on secondary data, availability of which was scanty both in terms of quality and quantity. However food price data, which WFP has been collecting since mid-1998, formed an important basis for the study. While no surveys were carried out for this study in Iraq, some issues were clarified by using WFP Food Monitors based in Iraq as key informants and engaging an Iraqi consultant based in Baghdad for gathering data from government and other sources. In addition, some insights into food insecurity and vulnerability issues were made possible by the findings of an on-going analysis of primary data collected by the WFP Iraq Vulnerability Assessment and Mapping Unit (VAM) from Focus Group interviews and a household survey carried out in the second half of 2003.

Distribution System (PDS) of food - cereals and other important basic foods - to assure basic food needs to all households. Since 2003, Iraq does not face sanctions anymore. Its old regime has been ousted; the country is under occupation by the Coalition Forces led by the USA, and in the near future, self-rule based on democracy is expected to be in place. However, these fundamental changes in the socio-political framework are not likely to take away the state-sponsored food security system though it was the creation of a sanctions regime. Even prior to the Gulf War, there had been abundant participation of the state in the food sector through generalized food subsidies and patronage to domestic food crops production. During these times no Iraqi household would have considered such state interventions as a tacit understanding between the state and the population that assures them their daily meal. Since 1990, however, food-based transfers have come to stay as a binding social contract between the state and the people. It has been necessitated by conflict conditions and rationalized by the international community through the Oil-for-Food Programme (OFFP) begun in 1997. The OFFP primarily recognized the need for food transfers and enhanced the quantities that were being given under the already existing PDS. The exchange of oil for food also provided the implicit underpinning that the society as a whole has the right to share the wealth nature has bestowed upon it. There are humanitarian reasons why the food markets will continue to be dominated by public distribution. Deterioration of economic conditions during the last 13 years have forced a relatively large segment of the population to be highly dependent on the public transfers for their food security. Even if food markets blossom and food supplies abound, these households are unlikely to relieve themselves from state dependence, until an economic revival helps them earn satisfactory and regular incomes and become self-reliant. How quickly an effective and wide-based process of economic growth can be unleashed is of crucial importance to the less fortunate segments of the population. The extent of poverty and vulnerability to food insecurity is being analyzed by the Word Food Programme based on a household survey and focus group interviews conducted in the second half of 2003 for a baseline study on food insecurity in Iraq. Preliminary results of this study indicate that 53% of the population is in poverty, with 11% in extreme poverty and at least half of the poor (25% of the population) are almost fully dependent on the PDS transfers. 4 Iraq’s food markets, in particular food grain, have become and will increasingly become highly import-dependent. Iraq was once known to be self-sufficient in food; in the 1950s, local production of cereals was sufficient to feed a population that was much smaller relative to present day population. Imports soon became a necessity prompted by high rates of population growth and limitations to expanding the extent of land for agriculture, accelerated by factors such as several war-related damages to infrastructure, loss of cultivable land to salinization and periodic spells of drought. Although there have been attempts from time to time in the past two decades to make agriculture a development priority, the sector has had a lack-luster performance. The ills of the agricultural sector may have initially stemmed from the state becoming the largest landholder (with peasants dependent on annual leases), and then continued to spread through due to subsequent 4 Communication on preliminary results of “Baseline Food Security Analysis in Iraq” (June 2004) by WFP Iraq Unit, Cairo, Egypt.

factors such as government controls on pricing, neglect of agricultural infrastructure and regional discrimination. The agricultural sector has also been affected both directly and indirectly by two large-scale wars—the Iraq-Iran war and the Gulf War. Destruction of agricultural infrastructure and removal of migratory labor were some of the direct effects while the demand for resources for the wars at the expense of development produced the indirect adverse effects. In later years, during OFFP, large-scale food distribution minimized the economic advantages of domestic production. The future role of domestic agriculture in food supplies and the relative roles of the state and the private sector in agricultural development are key policy issues to be tackled in the development of Iraq. Although Iraq’s external trading activities are mainly concentrated in the export of oil and import of major food needs, both of which have been a virtual monopoly of the state, there have been informal trading activities between Iraq and a number of neighboring countries. Iraq has direct trade routes to Iran (Baramadad, Khosravi, Halabjah,Baneh, Haij Umran), Turkey (Habur), Syria (Tall Kahnik, Al Quaim,Al Tanf), Jordan (Turaybil), Saudi Arabia( Ar’ar) and Kuwait (Umm Qasr). Depressed domestic cereal prices due to the PDS encouraged cross-border exports of rationed food items and some of the excess domestic wheat production. As trading gets liberalized trade with neighboring countries is likely to expand unless the domestic market is able to reflect actual import prices. Cross-border trade routes are under the control of the entry-countries; border- crossing closures have been frequent, often motivated by political reasons. Notwithstanding the dominant role of the state in food marketing, there is an active private sector operating in all areas of food (and non-food) marketing. Even the PDS is largely run with the assistance of the private sector (transport, milling, food distribution). Each governorate has large food market centers, which are linked inter-regionally by an active wholesale trade. Before 1990, it was the private sector that carried out almost the entire gamut of food marketing; it may be the same structure (actors, machinery and equipment) that may have continued to operate after 1990,but in an environment of severe constraints to maintaining adequate replenishments, repairs and upgrading of equipment and machinery. The overall marketing structure in terms of machinery and equipment may be on the verge of collapse after years of make-shift operations. Iraq’s food and agricultural marketing structure, in general, has been influenced by the authoritarian role of the state in the economy. One victim of the authoritarian political environment has been independent research on consumption, supply and trade issues that need regular analysis to contribute to increasing efficiency of these activities. Research and analysis on marketing issues in the past ten to twenty years are hard to come by. It is not clear how the political system acted to stymie these activities. But, there are indications that in the recent past the state system may have encouraged a tendency to exaggerate the negative impact of the sanctions by way of underreporting or keeping data and information from public use. For example, the last FAO-WFP mission (2003) to Iraq found evidence of large-scale underreporting of domestic production, although proper data were being collected at the regional and sub-regional levels.5 5 Food and Agricultural Organization (2003). Special Report: FAO/WFP Food Supply and Nutrition Assessment Mission to Iraq -September 2003

The consumer base Iraq’s food marketing activities have to cater to a very large consumer base. According to results of the 1997 census, Iraq’s population that year was 22 million people. While the average population growth before the sanctions was estimated at 3.6 percent, this rate has been reduced by emigration and economic hardships since the sanctions, reaching 2.76 percent in 2003.6 Based on the ration entitlements, the population in 2003 has been estimated at 27 million (Table1). This reflects a 23 percent increase from 1997.7 Average population density is estimated at 61/km2, ranging from 9/km2 in Anbar governorate in the western desert to more than 1,490/km2 in Baghdad governorate.8 Population concentrations in Iraq are indicated in Map 1. Baghdad area (Baghdad, Babil and Karbala) in the center/south region has about one-third of the total population of Iraq. Clearly, the market centers in these areas must be playing a dominant role in the overall food marketing in the center/south region. Ninewa in the northern part of the center/south has over 2.5 million people has major marketing centers that exert influence over both the northern region and the rest of the center/south. The three northern governorates carry about 14 percent of the total population of Iraq.

Table 1: Population of Iraq 1997 and 2003

Governorate Population 1997(a) Population 2003(b) % Change Anbar 1,023,736 1,270,952 24 Basrah 1,556,445 1,981,901 27 Muthana 436,825 569,933 30 Qadissiyah 751,331 915,564 22 Najaf 775,042 950,222 23 Erbil 1,095,992 1,334,176 22 Sulaymaniyah 1,362,739 1,605,506 18 Tameem 753,171 881,494 17 Babil 1,181,751 1,408,730 19 Baghdad 5,423,964 6,499,975 20 Dahuk 402,970 817,376 103 Thi-Qar 1,184,796 1,538,871 30 Diyala 1,135,223 1,271,310 12 Karbala 594,235 741,744 25 Missan 637,126 848,322 33 Ninewa 2,042,852 2,521,260 23 Salah al Din 904,432 976,128 8 Wasit 783,614 938,734 20 Total 22,046,244 27,072,198 23

(a) Population Census 1997 (b) Based on Phase XIII PDS ration eligibility 6 In order to derive the food requirements for distribution under PDS, the government of Iraq used a 0.23 rate of monthly population increase (2.76 annual rate). 7 This is somewhat higher than what a 2.76 percent increase from 22 million would indicate. PDS figures used in Phase XII of the PDS Distribution Plan for 2003 were based on actual distribution figures of an earlier distribution phase (Phase VII). Under PDS, food rations are available for all Iraqis, Arabs and foreign residents. 8 FAO (2003), ibid

The consumer base is also dominantly urban. At least 75 percent of the population at present resides in urban areas; the urban population has grown approximately at 5 percent between 1960 and 2000.9 Nearly one quarter of the population is in the highly urbanized governorate of Baghdad.

MAP 1: Distribution of population in Iraq

9 Economic Intelligence Unit. July 2003. Iraq Country Profile

2. Cereal supply and demand: the big picture The major food category in the Iraqi diet is cereals. Past food balance sheet data shows that cereals may have accounted for nearly 60 percent of the total energy supply in the average diet.10 Wheat flour dominates the cereals group and may account for about two-thirds or more of cereal consumption. Wheat is locally grown but the domestic supply may on the average contribute not more than one-third of the total wheat supply in a given year. There is, thus, a heavy dependence on imports. Rice is the other preferred cereal. Iraqi’s prefer locally grown rice to imported rice, with the latter contributing about half of the rice consumption. Barley and maize are the other important cereals grown in the country, which are essentially meant for livestock. However, relatively small amounts of maize may be used for human consumption in certain parts of the country. Apart from cereals, vegetables and fruits command the focus of local production and marketing activities. In terms of quantities, the next important items are milk and sugar (the latter wholly coming from imports) followed by meat and eggs, which are considered preferred items in the diet but the overall quantities demanded, are relatively small. Trends in cereal balance Cereal Balance Sheets (CBS) prepared by FAO-WFP Crop and Food Supply Assessment Missions to Iraq are available for several periods. Table 2 gives a series of CBS: the average of 1984/85-1988/89 period, 1995/96, 1997/98, 2000/01, and 2003/04. The CBS are for crop years that span from June to July. The, data covers a pre-sanctions period, periods under sanctions both prior to OFFP and post-OFFP and 2003, the year of occupation by the Allied Forces. Per capita cereal availability has varied between 121 kg/year and 191 kg/year. A relatively low per capita cereal availability of 121 kg/year from a total cereal availability of 3.6 million tons during the 1995/96 crop year represents primarily the impact of sanctions on import levels. After 1997, the per capita availability increases to over 170 kg/per mainly due to imports under OFFP. It appears that well over 5- 5.5 million tons of cereals may have moved in the market during the OFFP regime (1997-2003) with the volume of imports which may average to around 4 million tons. The movement of this food (imports and internal distribution) were completely under the control of the government though the UN had oversight over allocation of funds, approval of the distribution plans and actual distribution in the three northern governorates. The period 1984/85-1988/89, where the per capita availability is recorded at 191 kg/year, is of particular importance. This is the highest per capita availability for the reported years 10 World Food Programme. November 2001.OIL For Food-Food Basket Adequacy Assessment Survey. Iraq-North Coordination Office

and, perhaps, this level represents the average consumption level at times of unrestricted supplies. Imports during this period were more than the amount indicated as food use, suggesting a policy of liberal imports to meet domestic production shortfalls and assure relatively high levels of cereal consumption.

The virtual doubling of the domestic availability of cereals in 2003/04 relative to the levels seen during the pre-sanctions period and 1997/98 (the crops in 2000/01 were vastly affected by a spell of drought) was both a result of having exceptionally good weather conditions during this crop year and a crop estimation procedure that tried to correct some serious under-estimation of production in the past. The FAO-WFP Crop, Food Supply and Nutrition Assessment Mission to Iraq (2003) addressed a long-standing issue of weaknesses in agricultural data reporting.11 The mission found that there has been very serious under-reporting of production data. Reported data have been based on recorded sales to the government silos and not on the actual gross production. These estimates have not taken into account wheat kept for home use for the coming season, sold privately, fed to home-based livestock, and kept for seed. It has also been observed that the Ministry of Planning (MOP) also keeps a data base that has not been given to previous FAO-WFP assessment missions. These production estimates for the past five years are found to be approximately twice that of the official figures received by FAO. The 2003 mission, however, did not use this data- base because their provenance is unclear and disaggregated statistics were not available to the mission. The mission estimates were derived on the basis of the information from the Department of Agriculture (DOA) offices, past averages of FAO data and field-level enquiries through key informants and community discussions. The mission has appropriately

11 FAO-WFP.2003. ibid

Table 2 : Cereal Balance Sheets for 84/85 to 88/89, 95/96, 97/98, 2000/01 and 2003/04 ('000 tons)1984/85-88/89 (1) 1995/1996 1997/1998 2000/2001 2003/2004

Domestic availabity 3440,0 24290 2125,0 7940 5747Opening stocks 1376,0 0,0 0,0 0,0 1627,0Production 2064,0 2429,0 2125,0 794,0 4120,0Total Utilization 6694,0 3646,0 5356,0 5502,0 9191,0Food use3 3041,0 2505,0 4066,0 4252,0 4746,0Feed 1497,0 641,0 740,0 750,0 1685,0Seed,losses& other uses 752,0 500,0 550,0 500,0 795,0Closing Stocks 1333,0 0,0 0,0 0,0 1665,0Exports 71,0 0,0 0,0 0,0 300Imports 3254,0 1217,0 3231,0 4708,0 3444,0Commercial imports4 3254,0 1081,0 3188,0 4690,0 3200,0Food Aid 0,0 136,0 43,0 18,0 244,0Pp Cereal food use (kg/year) 191 121(2) 179 172 178

FAO-WFP Assessment of the Food and Nutrition Situation in Iraq (May 2000)Source: FAO-WFP Crop, Food Supply and Nutrition Assessment Mission to Iraq (September 2003)

(1) Average (2) Based on Actual utilization,which was substantially below pre-1990 levels ( 3 ) Based on total availability including pipeline plus outstanding contracts for an estimated population on 27.8 mi ( 4 ) Based on approved contracts in WFPs EMOP 10259.0 pipeline delivery up to end of November times two

recommended a thorough overhauling of the agricultural data gathering and reporting system in Iraq. The total utilization in this period (2003/04) is estimated at 9.1 million tons and the total food use at 4.7 million tons. Apparently, the food use component has been derived by using178 kg/per capita/year requirement for a population of about 26.4 million people. The closing stock of 1.6 million tons is the residual after allowing for food use, feed, seed, losses, export and other uses. One issue here is the per capita requirement of 178 kg/year. When converted to wheat flour and rice, the estimated monthly consumption level is about 12.6 kg, just a little over the amount of cereals received under the ration per month. A recent survey undertaken for this study by WFP, using its Food Monitors based in Iraq as key informants, estimated the monthly per capita cereal requirement to be about 16 kg, which works out to 192 kg of grain equivalent.12 This estimate is virtually the same level as the per capita cereal food use the pre-sanctions period of 1984/85-1988/89. It should be noted that the food availability in 2003/04 period is sufficient to meet a per capita requirement of 191 kg, in which case the closing stock will be lowered by about 323,000 tons. Cross-border trade Another important issue is the amount of cereals that is likely to be exported from Iraq to neighboring countries. The FAO-WFP assessment puts this amount at about 300,000 tons for the crop year 2003/2004. The mission noted that in 2002, exports to Syria through Rabia customs gate have been estimated at 120,000 tons of wheat, 175,000 tons of barley, 800,000 tons of wheat bran, 15,000 tons of lentils and 3,000 tons of chickpeas. Informal exports of some grain to Syria and Iran were also noted. However, it is quite likely that a much larger amount than 120,000 tons of wheat is exported in a good production year such as 2003/2004. Most of such wheat exports comes from the Northern regions. This region produced about 596,000 tons of wheat in crop year 2003/2004, while the total grain equivalent of the wheat requirement for its population (about 3.7 million people) is 636,000 tons.13 PDS provides 477,000 tons of grain equivalent to the three northern governorates leaving a demand for local wheat of about 159,000 tons. The excess domestic production, after allowing 10 percent for all other uses, will be about 580,000 available for export and/or sale to the government. MOT, working with WFP, purchased about 90,000 tons from the northern region during 200314, leaving about 490,000 tons (in the form of ration flour and local wheat) for exports to neighboring countries and/or to center/south, if needed.15 A response to an enquiry by the WFP VAM office in the Northern region indicated that about 60 percent of the locally grown wheat is used for local consumption and about 30 percent wheat grain sold out (the VAM report also indicates that about 175,00 tons of

12 World Food Programme. March 2004. “Survey of Iraq’s food marketing characteristics using WFP’s Food Monitors as key informants”. WFP Iraq Country Office Planning Unit. Unpublished data. 13 Food and Agricultural Organization . September 2003. ibid, Table 7a. 14 Communication form Ministry of Trade, Government of Iraq 15 A similar simple wheat balance estimate for the center/south indicated an excess of about 875,000 tons of wheat in this region. MOT purchases from this region amounted to about one million tons in 2003.

wheat grain that may be exported from the region).16 According to average consumption requirements discussed above, this implies that about 280,000 tons of ration flour are not locally consumed but exported. Sources and uses of food grain: a summary balance Table 3 provides a stylized rendition of the relative importance of the state, producers and private traders in food grain flows in the market based on total population of 27 million people.

Table 3: A summary balance of sources and uses of food grain

A) Wheat Flour (MT) Domestic production 2,050,000

Farm-level use (a) 574,000 State procurement 820,000 Private trade 656,000

Imports 2,050,000 Total availability 4,100,000

Total ration availability 2,916,000 Ration re-sales (b) 583,200 Ration consumption 2,332,800

Exports 246,000 User shares (%)

Ration consumption 56 Farm-level uses 14 Private trade 30

B) Milled rice (MT) Domestic production 123,000

Farm-level use (c) 30,000 State procurement (d) 12,000 Private trade 71,000

Imports 972,000 Total availability 1,095,000

Total ration availability 972,800 Ration re-sales (e) 97,000 Ration consumption 875,800

User shares (%) Ration consumption 80 Farm-level uses 03 Private trade 17

C) Total wheat flour and rice availability 5,195,000 Source/user shares (%)

Production 42 Imports 58 Ration consumption 60 Farm level uses 12 Private trade 28

16 G. Kaka, WFP VAM Unit, Northern Iraq, personal communication

(a) seed use at 140kg/ha for 1.8 mn ha; losses at 7.5% and farm-level retention (for own-consumption, livestock uses and contingency reserves) considered at 1.5 mt/year per household based on FAO-WFP 2003 report observations. In the absence of official data on the number of wheat farming households, it is assumed that 10 ha may be the average wheat farm size yielding about 180,000 households (upper limit) to be associated with wheat farming. (b) estimated at 20% (lower limit) of the total ration availability; re-sales handled by private trade (c) seed use at 120 kg/ha for 115,000 ha; losses at 7.5% and farm-level retention at 0.5 tons/year/household for 23,000 households (based on the assumption that the average rice farm size is 5 ha) (d) estimated at 10% of the crop; ration re-sales handled by private trade (e) estimated at 10% of total ration

Data pertaining to year 2003, a relatively good year of domestic production, provided the basis for this analysis. Ration consumption accounts for about 60 percent of the total availability of food grains and about 60 percent of the grain supplies is dependent on imports. This analysis also indicates that the private sector handles about 30 percent of the wheat flows and 17 percent of the rice flows in the Iraqi markets. In the overall grain market (wheat and rice) the private sector share is about 28 percent. These findings imply that the private sector trade is already playing a significant role in the food grain market responding to both consumer and producer demands for trading activities. In addition, it should be noted that the bulk of the transport, processing and distribution activities in the public distribution system is carried out by the private sector on behalf of the government

3. Supply of cereals A. Cereal supplies from domestic agriculture Introduction Presently, the contribution from the domestic agricultural sector to the GDP is estimated at 29 percent, with sector providing employment for 20 percent of the labor force.17 It also supports a rural population of about 7 million people, constituting 25-27 percent of the total population. The total agricultural output in 2002 was $1.6 billion. In the last 15 years agricultural production has been declining on an average by 1.1 percent per year. Crops production--wheat, barley, rice and maize-- has been a major activity in the sector. Iraq’s domestic agriculture at present is capable of meeting only about 30-40 percent of the cereal requirements for food use. In the late 1950s, Iraq’s agriculture was able to supply all the cereal requirements of a much smaller population18. However, in the 1960s imports accounted for about 15% of the food supplies, increasing to 33% in the 70s and

17 UNDG-World Bank. October 2003. Reconstructing Iraq’s agriculture, water resources and food security system. 18See, Federal Research Division of Library of Congress, “Country Studies” Iraq in website, www.countrystudies.us/Iraq/. According to one estimate, the average population of Iraq from mid-1950s to mid-1960s is 6 to 8 million people: see website, www.library.uu.nl/wesp/populastat/Asia/iraq.htm

to over 50% in the 1980s. The high dependence on imports for the country’s food supply has continued. Several factors contributed to the inability of domestic agriculture to make a larger contribution to the overall cereal supplies: an increasing population, limitations on the water supplies from Tigris and Euphratis rivers, periodic but relatively long-drawn out droughts, impact of two wars agricultural infrastructure and resource availability for the sector, a policy framework that constrained proper agricultural growth and the impact of post-Gulf War sanctions that limited agricultural input supplies and modernization of the sector. The food supply situation after the imposition of sanctions in 1990 necessitated a vigorous policy of encouraging domestic production and state compulsory procurement to run public distribution of food to the population. Domestic agriculture responded favorably to the challenge but within a short period began facing various constraints. Under OFFP in 1997, PDS rations were enhanced and in general met over 80 percent and 70 percent of the energy and protein consumption levels recommended by the UN.19 However, the distribution of large quantities of cereals, especially wheat, virtually free to the entire population through the PDS took away the bulk of demand for locally grown cereals. At the same time, the former policy of state procurement was relaxed; PDS under OFFP was heavily dependent on imports for its food supplies. Consequently, wheat prices were depressed yielding a negative impact on domestic production.20 A FAO estimate shows that reductions in domestic wheat prices since 1996.97 have led to a decrease in wheat cropped area by 12.8 percent.21 It is not clear whether this estimate has taken into account other disincentives that existed during the sanctions regime. For example, there were problems of assuring adequate supplies of fertilizer, pesticides and spare parts for pumps and other agricultural machinery. The period also experienced concerted efforts to increase the supply of animal protein, mainly through increased poultry production, reflecting a shift of focus from crop agriculture. While these factors could also have negatively affected crop production, the dominant disincentive may have come from the vastly reduced demand for domestically produced wheat due to PDS. Production base The total land area considered suitable for agriculture is about 27 percent of Iraq’s total land area of 43.3 million ha. Of the 11.1 million ha cultivable land area, 4.4 million are classified highly suitable, 4.7 million moderately suitable and 2 million ha less than suitable for agriculture.22 About 50% of the land suitable for cultivation is irrigable, and the remaining 50% identified as rain-fed area, of which about half may be cultivated every year depending on rainfall and fallowing patterns. About half of the total cultivable area is in the northeastern plains and mountain valleys, where rainfall helps sustain agriculture. The remainder of the cultivated land is in the valleys of the Euphrates and Tigris rivers, which receive scant rainfall and rely instead on water from the rivers. 19 Various FAO-WFP Crop, Food Supply and Nutrition Assessment Missions to Iraq 20 UNDG-World Bank. October 2003. Ibid. 21 Food and Agriculture Organization. May 2003. Towards Sustainable Agricultural Development in Iraq: The Transition from Relief, Rehabilitation and Reconstruction to Development. 22 Food and Agricultural Organization. September 2003. Ibid..Technical information on domestic agricultural base comes from various FAO/WFP mission reports.

From a regional perspective, water resources are abundant in Iraq. The two great river systems of the Tigris and Euphrates have continued to be a major determinant of the state of Iraq’s domestic agriculture. The river system provides irrigation water for agriculture at a rate of about 77 billion m3 in good years and around 44 billion m3 in drought years. Development of the Tigris and Euphrates rivers system has been contingent upon agreements with other upstream users (Turkey, Syria). Ground water is also used in the north and some western desert areas. Government water control projects have drained most of the inhabited marsh areas east of An Nasiriyah by drying up or diverting the feederrivers; a once sizeable population of Marsh Arabs, who inhabited these areas for thousands of years, has been displaced. Irrigated crops are grown primarily in central and southern Iraq and in the river valleys. Irrigated summer crops include rice, corn, dates, cotton, vegetables and fruits. For the most part, a single crop is planted per year, although there is some multiple cropping of vegetables where irrigation water is available. Rain-fed crops are primarily grown during the wet months from November through April (Chart 1). The intensity and timing of rainfall are critical and cause wide variations in production. Rain-fed barley and wheat constitute 40-50% of the total production of these crops.

The rain-fed sub-sector is virtually limited to the northern (Dohuk, Erbil and Suleimania governorates) and north central (Ninewa, Tammem and Salah al Din governorates) areas. Elsewhere in the country, the dry-steppe and desert climates with rainfall of less than 200 mm exclude rainfed cultivation of cereals. The rain-dependent winter growing season extends from September/October to April/May. Average precipitation is from 350 mm to 1 100 mm increasing from south to north. Variations in the intensity and distribution of rainfall dictate the annual crop outputs, which could range from 500,000 tons to 2 million tons. The rain-fed farming systems throughout all zones are essentially similar; continuous wheat with fertilizer applications juxtaposed with a barley/fallow rotation

Commodity Jan Feb Mar Apr May June July Aug Sept Oct Nov DecWheat Hars HarN PPLs PPLN

Barely Hars HarN PPLs PPLN

Maize PPLE Har PPLL

Rice PPLs PPLN HarN Hars

Chickpea PPLN HarN

Beans Har / PPL PPL /Har

Cotton PPL PPL Har HarSunFlower PPL PPL Har Har

PLL = Ploughing;and Planting; Har = Havrvesting; N = North; S= South; E= Early,L= late = Crops in the Field

Chart 1 : Iraq Cropping Calender

Source: FAO-WFP Crop, Food Supply and Nutrition Assessment Mission (September 2003)

which usually does not include fertilizer use, but may incorporate chickpeas one year in three or four. Irrigated cropping take place predominantly in the center and south and account for about 70% of domestic production. Most irrigated crops are produced in the landmass between the Tigris and the Euphrates rivers from Baghdad to Basra, which represent some 40% of the arable land in the country. As in the rain-fed sub-sector, the main crops are wheat and barley, sown in October/November and harvested in May/June. These two crops are planed on roughly 2.5 million of the 3 to 3.4 million ha presently irrigated, with annual cereal production estimates for the sub-sector fluctuating from 700,000 (2000) to 3 million tons (1991). Perennial crops, notably dates, alfalfa, citrus, top fruits, stone fruits and nuts account for remaining 20%, depending on availability of water in the summer. The harvesting season for the two major crops, wheat and barley, falls during the months of May and June (Chart 1), whereas rice, a smaller crop, is harvested in September and October. Production trends The data base of the FAO STATS service contains production, area and yield data for wheat, rice, barley and maize for the period 1961 to 2003. However, there is reason to be cautious when using this data for estimation of long-term trends, because of the observed tendency to under-report production data (discussed earlier). FAO-WFP Mission made adjustments to the 2002 production estimate for wheat based on the degree of estimated under-reporting in previous years and applied the new assessment procedures for the year 2003, but the degree to which underestimation may have affected data for previous years is not yet ascertained. (see Appendix Tables 1 and 2 for production, yield and area data on wheat and rice). Wheat: Table 4 below gives the average production, area and yield estimates for wheat and rice for various periods during 1961-2003. Domestic wheat production averaged a little over one million tons per year during the period 1961 to 2003. When adjusted data for 2002 is included in the period 1990-2003, it gives the highest average production figure for any period (1,244,976 tons per year), but one cannot conclude that the level of production has increased during this period without making data adjustments pertaining to the other periods. However, it is likely that the under-reporting may have been a sanctions-driven phenomenon, with a potential motivation to show a negative impact of the sanctions on domestic agriculture. Wheat production in Iraq has been erratic; no significant trends in production, area or yield are observable (see Table 5) during the period 1961 to 2003—this is so, even when adjusted data are used for 2002 and 2003. The area under wheat has varied between half a million ha (1984) and 2 million ha (1993). On the average, 1.3 million to 1.5 million ha could be expected to come under wheat cultivation. Although erratic in general, wheat yields did show a significantly positive trend during the period 1981-1990 (Table 5), but the decline that set in thereafter has not been effectively reversed.

Table 4: Average production, area and yield of wheat and rice 1961-2000 different periods

Wheat

Period Production (mt) Area (ha) Yield (kg/ha) 1961-1970 988,535 1,290,000 756 1971-1980 1,115,700 1,335,955 835 1981-1990 895,910 1,049,273 853 1991-2000 1,092,440 1,566,878 697 1990-2002(a) 1,078,477 1,493,796 723 1990-2003(b) 1,244,976 1,547,811 804 1961-2003 1,055,322 1,320,722 799

Rice 1961-1970 203,626 70,800 2,876 1971-1980 172,045 61,309 2,806 1981-1990 163,200 57,553 2,835 1991-2000 232,710 122,793 1,895 1990-2002(a) 213,377 115,933 1,840 1990-2003(b) 213,136 116,580 1,828 1961-2003 187,996 79,985 2,350

(a) unadjusted data 1990-2002 (b) adjusted data for 2002 and 2003

Source: Food and Agricultural Organization. FAO STATS data base Rice production has varied between 60,000 tons and 380,000 tons. There has been strong growth during 1961-1970 and 1981-1990. However, rice production has experienced negative growth since 1990 (Table 5). Increasing levels of rice production that occurred between 1990 and 1999 could not be maintained due severe effects of droughts that began in mid-1999 and continued for over two years. When considering the entire period, area under rice indicates an increasing trend of around 2% growth per year. Rice yields, on the other hand, show a decline at the rate of about one percent per year. Total rice production does not show a trend. The expected future production may not vary much from the average production seen in the last decade—a little over 200,000 tons.

Table 5: Growth rates of wheat and rice production, yield and area harvested

1961-2000 different periods

Wheat Period Production (%) Area (%) Yield (%) 1961-1970 5 2 (N.S.) 3 (N.S.) 1971-1980 5 (N.S.) -0.7 (N.S.) -5 1981-1990 4 (N.S.) -2 (N.S.) 2 1991-2000 -8 -4 -3 (N.S.) 1990-2003 -1 (NS)- -4 (NS) -1 (NS) 1961-2003 0.2 ns 0.3 ns -0.4 ns

Rice 1961-1970 13 13 3 NS 1971-1980 -2 NS -4 NS 1 NS 1981-1990 5 4 0.9 NS 1991-2000 -6 NS 1 NS 4 NS 1990-2003 -6 0.9 NS -3 NS 1961-2003 0.1 NS 2 -1 N.S= Not significant Note: Growth rates were calculated based on the semi-log function y = ebt , where the base of the natural logarithm, e, is approximately equal to 2.71828, y is production, yield or area, t is year, and b is the estimated growth rate. Regional wheat production The average wheat production, area and yields for the last two years, 2002 and 2003, in different governorates are shown in Table 6. Map 2 pictures the relative importance of the governorates in wheat production. Production data indicates that the bulk of domestic wheat marketing activities is concentrated in the central region accounting for nearly two-thirds of total production. In this region, the highest production takes place in the governorate of Wassit (irrigated wheat), followed by the north-central governorate of Ninewa. The three governorates in the northern region produce about 28 percent of Iraq’s wheat production. Production in the south is minimal.

Map 2: Regional wheat production

Area (a) ha % of Total Production (a) mt % of Total Yield(a)

North 429,219 23.22% 612,744 27.79% 1.4Erbil 138,922 7.52% 208,261 9.45% 1.5Dohuk 127,010 6.87% 179,146 8.13% 1.4Suleimaniya 163,288 8.83% 225,338 10.22% 1.4South 118,556 6.41% 140,304 6.36% 1.2Basra 15,150 0.82% 17,283 0.78% 1.1Missan 62,250 3.37% 78,500 3.56% 1.3Thigar 23,796 1.29% 26,786 1.21% 1.2Muthana 17,361 0.94% 17,735 0.80% 1.0Centre 1,300,506 70.36% 1,451,738 65.84% 1.1Baghdad 45,932 2.49% 83,355 3.78% 1.7Babylon 67,293 3.64% 118,198 5.36% 1.7Wassit 158,373 8.57% 310,621 14.09% 2.0Qadisia 65,058 3.52% 115,779 5.25% 1.8Kerbala 4,982 0.27% 10,170 0.46% 2.0Anbar 32,796 1.77% 43,934 1.99% 1.3NaJaf 45,323 2.45% 85,199 3.86% 1.9Dyala 93,555 5.06% 132,816 6.02% 1.4Salh Al Din 125,727 6.80% 125,582 5.70% 1.0Nineweh 478,563 25.89% 301,710 13.68% 0.6Tameem 182,905 9.90% 124,376 5.64% 0.7

Country Total 1,848,280 100% 2,204,786 100% 28.6

(a) Average of 2002 and 2003Source : FAO/ WFP Crop, Food Supply and Nutrition Assessment Mission to Iraq (September 2003)

Table 6: Average wheat production, area and yield in the governorates, 2002-2003

Future prospects Low productivity and lack of growth are the fundamental issues facing Iraq’s agriculture. Prospects for increasing production almost wholly depend on the prospects for increasing yields because of the limitations of bringing new area under cultivation. In the past, area coming under wheat almost always was under 2 million hectares; the trend has been similar in the case of barley too. Area under rice has been well below 150,000 hectares, while the average area cultivated to maize appears to have ranged between 60,000 to 75,000 hectares. Identifying the elements of the policy environment and required supportive actions in order to maximize the use of the potential for land expansion should be a key task in planning future development of Iraq’s agriculture. The more crucial task, however, is to seek ways and means of increasing productivity. If the standards obtained in the neighboring countries are a relevant reference, there seems to be a vast scope for improvement (see Table 7). In the case of wheat, yields obtained in the neighboring countries of Syria, Iran, Turkey and Jordan are 100 to 200 percent higher than the average yield seen in Iraq. In the case of rice, the neighboring countries that grow rice have average yields, which are 200 to 300 percent higher than Iraq’s yields.

Table 7: Wheat and rice yields in Iraq and neighboring countries(a)

Country Wheat yield (kg/ha) Rice yield (kg/ha) Iran 1774 4529 Syria 2343 Turkey 1840 5392 Jordan 1479 Iraq 746 1567

The recent UNDG-World Bank needs assessment for reconstructing Iraq’s agriculture, water resources and food security system23 concluded that Iraq’s agriculture has a lot of potential for growth, provided it is given the right support and policy environment. The sector is currently under-performing due to the combined impact of over two decades of heavy intrusion of the government in its key areas of activity, two wars that diverted resources and destroyed infrastructure and the economic sanctions that suffocated productive capacity. In the past difficult period farmers have shown that they can respond effectively to positive signals as demonstrated by developing a vibrant poultry industry when given the incentives and attempting to increase domestic crop production in the pre-Oil-for-Food sanctions environment. The re-vitalization of the sector to reach its current production potential and expanding the frontier of the potential itself will require in the first place the establishment of a well-functioning democratic form of government working in a secure socio-political environment and the removal of barriers to private decision-making on production and trade. These have to be complemented by the provision of the required support services to help the development of the sector and minimizing the production and trade disincentives that emanate from social welfare policies. The latter in particular relates to the un-targeted transfers of highly subsidized food commodities. With the advent of the OFFP in 1997, the quantities of wheat flour and rice distributed to the entire population under the Public Distribution System increased significantly. Meeting the bulk of the demand for food through virtually free distribution of food minimizes market demand for food resulting in depressed market prices. The two cereals distributed under PDS are also locally grown. Based on the most recent distributions, the annual quantities of these cereals amount to over 2.8 million tons of wheat and nearly one million tons of rice. FAO estimates that reductions in domestic wheat flour prices since 1996/97 have led to a decrease in wheat cropped area by 12.8 percent.24 There could have been other disincentives that contributed to the decrease in the cropped area. For example, there were problems of assuring adequate supplies of fertilizer, pesticides and spare parts for pumps and other agricultural machinery. This period also experienced concerted efforts to promote increased supply of animal protein (mainly through poultry), which may have come at the cost of the required attention to the food grain sector. While these factors also could have negatively affected crop production, the dominant disincentive may have come from the vastly reduced demand for wheat and rice due to the PDS. Minimizing these price distortions without having serious consequences on food security imperatives is a major policy challenge. A comprehensive set of policy reforms and supportive interventions that could help fast growth of the sector and attendant improvements in employment and income-generation has been identified by the UNDG-World Bank Needs Assessment exercise as well as by the USAID’s “ agricultural development program for Iraq.25 The policy reforms basically are aimed at removing the constraints to growth that are brought about by the existing

23 UNDG-World Bank. October 2003. ibid 24 Food and Agriculture Organization. May 2003. Ibid. 25 US Agency for International Development. June 2003. Agriculture Reconstruction and Development Program for Iraq.

government interventions in trade and marketing activities. The goal is to institute a free trade regime for agriculture with the abolition of price controls and state direction of the market. As for supportive interventions, several key areas have been identified that include effective public investments to rehabilitate and develop agricultural infrastructure, providing agricultural services with a focus on decentralization, efficiency, cost recovery, adequate O&M and participatory approaches, and establishing an efficient agricultural credit system. The USAID Program is envisioned to contribute to the reemergence and modernization of the agricultural system in the post-conflict Iraq. Its four components aim at revitalizing agricultural production, stimulating agro-enterprises and market development, nurturing rural financial services and rehabilitating the natural resource base. B. Cereal imports In the late 1950s, Iraq was self-sufficient in agricultural production, but in the 1960s it imported about 15 percent of its food supplies, and by the 1970s it imported about 33 percent of its food.26 Import levels were also high during the 1980s registering over 5 million tons of cereal imports in 1984 and 1989, the highest recorded levels of food imports (Chart 2). Prior to the embargo, the Iraqi population was accustomed to highly subsidized imported foods with only about 30 percent of cereal consumption being from domestic production. The luxury of abundant imports changed with the imposition of an economic embargo in August 1990, which placed a blanket ban on all imports and exports except for supplies intended strictly for medical purposes, and, in humanitarian circumstances, foodstuffs. The value of this exception, however, was rendered almost meaningless by the fact that over 90 percent of Iraq's hard currency income, necessary to purchase food and medical supplies from abroad, was cut because of the ban on oil sales and the freezing of its foreign assets. Food imports from 1991 to 1996 declined sharply; the average annual import amount during this period was 1.45 million metric tons27, while the average for the previous six years was nearly 4 million tons per year. Since 1997, food imports have been conducted under the Oil-for-Food Programme. The import figures indicate an annual average import of 3.6 million tons of wheat and rice under OFFP for distribution in the Public Distribution System (Table 8). The annual average for wheat imports is 2.78 million tons and for rice, 0.87 million tons. The average import price of wheat varied between US$157 and US$225 and the price of rice varied between US$255 and US$340 per ton. A large part of the cereal requirements for 2004 will come from the outstanding 26 US Library of Congress, “Iraq-Agriculture” (http://countrystudies.us/iraq/57.htm) 27 The sources of income facilitating these imports are not fully understood.

Chart 2: Cereal imports 1980-2000

Table 8: Wheat and rice imports under OFFP, 1997-2002

Year Wheat Rice

Quantity (mt)

Average price (US$)

Quantity (mt)

Average price (US$)

1997 2,291,027 197 535,221 340 1998 2,878,130 184 649,007 331 1999 2,257,217 157 676,204 328 2000 3,234,405 162 1,210,000 263 2001 2,806,824 202 985,000 296 2002 3,183,510 225 1,190,695 255

2003(a) (a) The contracts under OFFP were not completed due to the war situation. Source: Government of Iraq Ministry of Trade contracts of OFFP, which were to be delivered in 2003 but disrupted due to the war situation. The total funded contracts outstanding amounted to approximately 4.5 million tons,28 If the current Public Distribution System is to continue in its present form during 2004, the total requirement of wheat and rice for distribution would be 4.5 to 5 million tons29. According to the communication from MOT, half of the wheat requirement is to be met from domestic purchases, while the total rice requirement will be imported. Considering the bumper harvest of wheat from the 2002-2003 crop and the remaining imports from re- 28 WFP, various documents 29Projection based on the OFFP Phase XIII Distribution Plan (2003) and personal communication from MOT that the monthly requirements in 2004 are 305,000 tons of wheat and 83,000 tons of rice.

negotiated contracts under OFFP due to come during 2004, which may be between 3.0 to 3.5 million tons, it is unlikely that new imports will be required for 2004.30 Private imports: Cereal imports have been a virtual monopoly of the government. With a public distribution system that supplies over 80 percent of the cereal requirements and the availability of domestically produced cereals to meet most of the additional demand for cereals in the market, it is not surprising that the private sector has operated in any significant manner to import cereals. Although there may have been some scope to import rice to meet a certain degree of seasonal demand for rice (festival times), this has been dampened by the MOT making available adequate rations during Eid and other religious and national festival occasions. However, private trade has catered to special demand for confectionary-grade wheat flour bringing such flour from Turkey and Emirates. Relatively small imports have also tended to come from Syria, Jordan and Saudi Arabia.

4. Consumption demand A. Role of the Public Distribution System Food rations given under the PDS is the key determinant of market demand for cereals and some of the major non-cereals present in the average Iraqi diet. PDS exerts both a supply effect and an income effect on the demand for food; hence on their market prices and trading activities. PDS background and operation In August 1990, the Security Council (SC) adopted resolution 661, imposing comprehensive sanctions on Iraq following Iraq’s invasion of Kuwait. With the imposition of the embargo, the government of Iraq established a food distribution scheme, called the Public Distribution System, (PDS) to all people residing in Iraq. Sanctions and the Gulf War itself were having serious repercussions on the availability of food and status of human nutrition.31 Throughout 1991, the UN proposed measures to enable Iraq to sell limited quantities of oil to meet its people’s humanitarian needs. These offers were declined by the government of Iraq but in 1996 agreement was reached to implement SC Resolution 986, that established the “Oil-for-Food Programme (OFFP) providing Iraq with another opportunity to sell oil to finance the purchase of humanitarian goods (and various mandated UN activities concerning Iraq). The first consignment of oil was exported under OFFP in December 1996 and the first shipment of supplies under the Programme arrived in March 1997.

30 It should be noted that part of the food coming from OFFP contracts was to be used for PDS distribution in the latter part of 2003. 31 Various aspects (fact sheets, programme chronology, Phases of Distribution, Security council resolutions) of the Oil-for-Food Programme can be found in the website of the UN Office of the Iraq programme: www.un.org/Depts/oip

In the initial stages of the Programme, Iraq was permitted to sell $2 billion worth of oil every six months with two-thirds of the sale proceeds used for humanitarian needs. In 1998, the limit on exports was raised to $5.26 billion every six months. In December 1999, the ceiling on oil exports was completely removed by the SC. Seventy-two percent of the oil revenue was allocated to the humanitarian programme, 25 percent for the Gulf War Compensation Fund and 3 percent for UN activities. Of the funds allocated to Iraq out of the UN escrow account, only 25 percent was allocated to purchase of food. The remaining OFFP funds were allocated across 23 different sectors involving at least 13 Iraqi government ministries. Overall the revenue spent in Iraq was divided as follows: 59 percent for humanitarian goods and services for the central and southern Iraq; 13 percent for humanitarian goods and services in the three northern governorates. Distributions in the northern governorates were managed by the UN agencies. At the time of the termination of the OFFP in November 2003, some $31 billion worth humanitarian supplies and equipment had been delivered to Iraq. The food and supplies importing process began with a distribution plan for a six-month period (called a Phase) submitted by Iraq to the UN. The plan, which was for all the 18 governorates (that included the three northern Kurdish governorates) contained a set of commodities, level of allocation, population numbers and operational details (see Table 9 for the Distribution Plan pertaining to Phase XIII of OFFP). Upon UN approval of the

Table 9: Consolidated plan and categorized list of foodstuffs, soaps and detergents (Phase XIII)

Items Monthly ration per capita kg)

Total monthly

requirements

Total needs for six months

Required value for six

months (US$) Food Wheat flour 9.00 289,000 1,734,000 370,000,000 Rice 3.00 84,500 507,000 135,000,000 Sugar 2.00 53,800 322,800 124,000,000 Tea 0.20 5,600 33,600 70,000,000 Cooking oil 1.50 40,750 244,500 160,000,000 Milk powder 3.60 2,520 15,120 66,000,000 Dried whole milk 1.00 26,400 158,400 225,000,000 Fortified weaning cereal

0.80 560 3,360 7,000,000

Pulses 1.50 41,500 249,000 30,000,000 Iodized salt 0.15 4,150 24,900 3,000,000

Sub-total (food) 1,190,000,000 Non-food Soap 0.25 6,850 41,100 37,500,000 Detergents 0.50 14,250 85,500 47,500,000 Sub-total (non-food) 85,000,000 Grand Total 1,275,000,000

Notes in the Plan: these figures represent indicative quantities and values subject to actual distribution and market conditions:

- Wheat is to be processed and distributed to beneficiaries as wheat flour. The conversion rate used ids 10 kg of wheat to 8.4 kg of wheat flour

- Quantities are calculated on the basis of population figures: 27,072,198 total population consisting of 26,373,919 adults and 698,279 children under one year of age

- For accuracy purposes, distribution losses are covered by adding a percentage to the quantity of food/non-food items distributed on a monthly basis: 4 percent for pulses, 2 percent for wheat flour, rice, sugar, cooking oil, salt and detergent and 0.5 for tea

- No additional quantities are given to the agents for milk powder, soap, weaning cereal and infant formulae as these items are distributed in tins or as pieces

- Cvhildren under one year of age receive infant formula, fortified weaning cereal, soap and detergent only

Source: Distribution Plan for Phase XIII submitted by the Government of Iraq to the Secretary general in accordance with the memorandum of understanding of 20th May 1996 and Security Council resolution 1447 (2002) plan, Iraq negotiated the contracts directly with suppliers and then submitted them to the UN for review. Once a contract was approved, the Banque Nationale of New York issued a letter of credit to the supplier. Goods were delivered to the border where inspectors from Cotecna, a Swiss company contracted by the UN, ensured that the goods match the contract. The Banque paid the supplier upon delivery of goods in Iraq. For Phase XIII (December 2002 to June 2003, later extended to November 2003), food and food handling combined account was earmarked at $1.5 billion (that is for six months), or approximately 31.6 percent of total OFFP spending within Iraq, demonstrating that OFFP encompasses far more than just food. It is believed that political reasons largely influenced the choice of supplier countries by the Iraqi government, which may have led to quality of supplies being secondary in importance. 32 PDS is an income transfer programme working through food transfers. Without it, a large segment of the population is likely to face serious food consumption problems due to insufficient purchasing power from their own resources. Allocation under OFFP for the food basket, for example the $1.27 billion for six months allocated in Phase XIII implies a monthly transfer of $8 per capita. The value of the planned OFFP ration in July 2003 in the center/south regions of Iraq worked out to about $5.19 per person per month. For a family of six persons, the monthly “ration income” would be $31. However, the actual rations quite often differed from the planned. For example, the actual rations in July 2003 transferred only $3.41 per person under market prices. It should be noted that the market prices are determined primarily by the amount of food given under the rations and the quantities that are sold or exchanged in the market by the beneficiaries. Finally, if the market prices were to reflect the then existing fob prices and average transport costs, the value of the July 2003 ration would have been $6.50 and the value of the planned ration would have increased to $9.33 32 Center for Strategic International studies. February 2003. A Wiser Peace: An Action Strategy for a Post-Conflict Iraq. 33 FAO-WFP. September 2003. ibid

Quantities given under rations indicate that they meet a large part of the consumption demand for most of the related food items. An adult beneficiary of PDS is entitled to receive about 18 kg of food commodities per month and an additional 0.75 kg of soap and detergent with a nominal payment of 250 ID (about $0.16 at an exchange rate of ID 1500= $1). The 144 kg/per capita of cereals received per year under the ration represents about 80 percent of the 178 kg/per capita/year considered as the average requirement by the FAO-WFP Mission34 or about 75 percent of the average supply of cereals observed in the Food Balance Sheet data for the years 1984-86, 1987-88 and 1989-1991 (Table 10). The sugar ration provides about 75 percent of the requirement of “sweetners. The same Food Balance Sheet data shows the oils and fats per capita annual requirement at 17 kg; the ration entitlement of vegetable oil is 18 kg. What seems as an excessive allowance of pulses in the ration --8 kg compared with about 5 kg/capita/year, the observed consumption level during 1984-1991 period –apparently arose out of the need to provide a vegetative source of protein to the population because the ration did not include adequate sources of animal protein.

Table 10: Per capita food supply (average 1984-86, 1987-88 and 1989-1991) Commodity Per capita supply (kg/year) Cereals 194 Sweetners 32.1 Pulses 5.23 Oils and fats 17 Source: FAO Food Balance Sheets The total value of an adult ration at the prices that ration goods fetched on the average during the period 200-2002 amounts to ID 5465 (Table 11). Accordingly, the net income benefit to an adult beneficiary would be 5215 taking away the mandatory payment of 250 ID. The total ration income would increase to about 5840 ID when the value of soap and detergent is added to the food basket value. Considering that the average household size could be about 8 persons implying that the total ration income would be 46,720 ID. In mid-2003, the average daily wage rate was about 3500 ID and work was not available for more than 10 to 15 days.35 For a house that depended on one persons labor income, the ration income, therefore, would almost be doubling the household income. At present, there are no estimates of income elasticities that would have helped understand the impact of the income effect of rations on the demand for food and other consumer goods. However, it is likely that the ration income effect would not have had a significant impact on creating additional demand for rationed goods, especially cereals, because a relatively large proportion of the demand for cereals has already been met by the ration itself.

Table 11: Value of the adult food rations to beneficiaries (average 2000-2002)(a)

Commodity Monthly ration (kg)

Selling market price

Market value (ID)

34 FAO-WFP. September 2003. ibid 35 based on interviews with several workers

(ID)

Wheat flour 9.0 100 900 Rice 3.0 300 900 Sugar 2.0 100 200 Tea 0.2 100 200 Oil 1.5 800 1200 Milk powder

1.0 1000 1000

Pulses 1.5 750 1125 Salt 0.15 250 40 Total 5465

(a) Based on WFP file documents Nutritional considerations The rationale for setting up the OFFP was the observed serious deterioration in human nutrition after the imposition of sanctions in 1991. Each OFFP Phase of implementation included a nutrition goal to be achieved through the food distribution plans. For example, in the last phase under OFFP, Phase XIII, a sum of US$ 1,275 million was allocated to the food sector with the expectation to provide 2,472 kilo-calories and contribute about 60 percent to total protein (see below).

General rations Plan XIII Calories (Kcal) 2472 Protein (non-animal) 51.7 Protein (dried whole milk/cheese) 8.5 Total protein 60.2 Infants Phase XIII Calories (Kcal) 696 Protein 19.7

When OFFP was introduced, it attempted to provide a much higher level of energy than the amount provided by the pre-OFFP food rations, which in 1996 was about 1,295 calories per capita per day. The level of energy expected to be supplied through the Phase XIII rations is about 20 percent higher than the energy level of around 2040 calories stipulated in the initial phases of the OFFP. It should be noted that the WHO recommended level of energy requirements under emergency conditions is 2200 calories per person per day. The relatively high level of 2472 calories in Phase XIII corresponds with the levels of apparent calorie availability in Iraq in the 1980s when food supplies were relatively abundant.

Throughout the operation of OFFP, several studies have attempted to examine the nutritional content and adequacy of the actual rations delivered in relation to expected levels of nutrient delivery according to the plans. Actual deliveries have almost always been lower than the planned deliveries due to various operational problems. One study, which examined the issue of shortfalls, found PDS distributions during the period from Phase I to Phase VII to have supplied between 77 percent and 97 percent of the planned energy content.36 In general, since the implementation of OFFP, the supply of energy and protein through the rations increased considerably, reaching an average of about 2150 calories/person/day and 45-5- grams of protein/person/day just prior to the war in 2003.37 The June 2003 ration supplied about 2000 kcals/person/capita and 43 g/person/capita of protein, which represent 81 percent and 71 percent of the expected levels these nutrients in Phase XIII plan (see Table 12). However, the apparent energy supply is nearly 90 percent of the WHO recommendation of 2,210 kcal/person/day in emergencies.

Table 12: Nutrient content of ration foods (June 2003 ration)

Commodity Quantity (grams/pc/day)

Calories (Kcal/day

)

Protein (grams/day)

Fat (grams/day)

Vitamin A (IU/day)

Wheat flour 300.00 1050.00 34.50 4.50 0 Rice 100.00 360.00 7.00 0.50 0 Sugar 66.67 266.67 0 0 0 Beans 8.33 27.92 1.67 0.1 0 Vegetable oil 33.33 295.00 0 33.33 833.33

Total 1999.58 43.17 38.43 834.43 Source: FAO-WFP Crop, Food Supply and Nutrition Assessment Mission to Iraq – Technical Report on Nutrition (September 2003) In general, OFFP has been able to provide a strong consumption platform to the population. There is also the likelihood that the income effect of the food transfers as well as the normal incomes available to households may have allowed further food consumption, especially the non-ration food items, thus enhancing the nutritional intake. Given the paucity of data, it is not possible to estimate the impact of the subsidy incomes and own incomes on increasing nutrition. As reported by the UN Office of the Iraq programme, malnutrition rates in 2002 in the center/south were half those of 1996 among children under the age of five; preliminary findings have also indicated that between 1996 and 2002 there was a reduction in the number of underweight children from 23 percent to 10 percent, chronic malnutrition from 32 percent to 24 percent and acute

36 Food and Agricultural Organization. May 2003. FAO-WFP Assessment of the Food and Nutrition Situation in Iraq. 37 Food and Agricultural Organization. September 2003 (2). Food Supply and Nutrition Assessment Mission to Iraq – Technical Report on Nutrition.

malnutrition from 11 percent to 5.4 percent.38 During the same period in the three northern governorates, there was a 56 percent reduction in chronic malnutrition and a 44 percent reduction in the in the incidence of under-weight children in the under-five age group. A UNICEF report in May 2003 has indicated that acute malnutrition among children had almost doubled from 4 percent to 7.7 percent in a short period before and after the war in March 2003; this deterioration was attributed to broken public services and limited access to food, water, sanitation and hygiene.39 In November 2003, WFP conducted a household survey in collaboration with the Central Statistics Office of the Ministry of Planning in Iraq. Over 28,000 households were subject to the survey, which included recording anthropometric measurements of children between ages of 12 and 70 months. Preliminary results regarding child malnutrition indicate prevalence of chronic malnutrition among children at a relatively high rate of 28.2 percent (Table 13). Two governorates, Taamim and Thi Quar, are found to have chronic malnutrition rates over 40 percent. Acute malnutrition at a national average of 5.5 percent appears to be less of a problem, while under-weight should also cause of concern, given the estimated prevalence rate at nearly 13 percent. These results are not strictly comparable to earlier surveys (for example, the UNICEF survey of 2000, which estimated chronic malnutrition to be 21 percent.40) because of the differences in the age group surveyed. However, the relatively high rates of chronic malnutrition in spite of the large-scale food transfer scheme, PDS, should be a matter for concern both in relation to the nutritional efficacy of the programme and in relation to any re-structuring efforts.

38 UN Office of the Iraq Programme. February 2004. Oil-for-Food Programme .About the Programme: Fact Sheet. www.un.org/Depts/oip/background/fact-sheet.html 39 UN Office of the Iraq Program. February 2004. ibid 40 UNICEF. 2001.Multiple Indicator Cluster Survey for the Year 2000.Preliminary Report.

Governarate Chronic Underwieght AcuteNinewa 31.9 13.9 5.8Taamim 43.5 21.8 4.9Diyala 35.6 11.4 2.5Anbar 35.9 15.0 7.1Baghdad 21.3 10.1 5.9Babil 32.8 16.7 4.4Krabala 21.1 16.7 7.2Wassit 36.0 13.1 4.4Salah-Al-Din 33.4 11.6 4.0Najaf 23.2 11.8 4.0Quadissaya 31.9 13.6 5.5Muthana 25.1 13.7 5.6Thi-Quar 41.2 16.1 4.6Missan 32.6 15.5 6.9Bashra 35.9 19.3 8.5Sulemaniyah 13.5 4.8 3.3IRAQ 28.2 12.9 5.5

Source : WFP Household Survey, November 2003(Preliminary Results)

Table 13: Child Malnutrition Rates ,2003 (%)

The discussion on the nutritional adequacy of the food transfers is relevant for a discussion on the future prospects of PDS. In the first place, universal transfers at nearly 80 percent to 90 percent of the nutritional requirements were deemed necessary given the sanctions background and the lack of growth in the economy. This situation has changed: sanctions are no more and the economy has shown signs of picking up. Rapid growth in the economy and attendant employment opportunities are predicted, provided internal security can be achieved and maintained. On the other hand, long years of poor economic performance, wars, conflicts and natural disasters (prolonged droughts) have left vast segments of the population impoverished. Analysis of food insecurity and vulnerability that are being carried out by WFP presently should shed light on the extent, nature and locations of the problems of food insecurity in the country. It appears that at a minimum a food-based safety net may have to be continued for quite some time; the challenge would be to make it more efficient and effective. B. Non-ration cereal demand The maximum quantity of cereals (wheat flour and rice) that could be obtained from the rations is 12 kg/capita/month or 144 kg/year. If this quantity is not sufficient, how much more of cereals is required in the average diet? Recent information on food markets gathered by WFP using its Food Monitors (presently working in Iraq to monitor the food distribution under PDS) as key informants indicates that the average per capita cereal requirement per month may be about 16 kilograms (Table 14).41 Wheat flour consumption is about 12kg/per capita/month and rice consumption about 4kg/per capita/month. This information also indicates that the poor tend to consume more wheat flour than the higher income groups and that the latter tend to consume more rice than the poor or the middle-income groups. Total consumption of both starchy staples seems to be higher for the low-income households than the middle income or rich households. The observed average consumption level implies a per capita annual requirement of 192 kilograms. This average amount of 16 kg/per capita/month is also consistent with a previous WFP study on the food adequacy of the PDS rations in Northern Iraq, which indicated the observed average wheat and rice consumption at 15.6 kg/month/per capita.42 It should be noted that the 192 kilograms is in terms of processed cereal; the unprocessed wheat and rice requirement would be about 225 kg/per capita/year.

Table 14: Average per capita monthly consumption of cereals (kg)

Wealth class Commodity Extremely poor Poor Middle income Rich Average(a)

Wheat 13.3 12.23 10.61 10.46 11.89 Rice 4.07 3.96 4.19 4.88 4.13

41 WFP Iraq Planning Unit, Market Information Survey using WFP Food Monitors as Key Informants (Unpublished survey results-Cairo, April 2004) 42 WFP Iraq-North Coordination Office, “Oil-for Food - Food Basket Adequacy Assessment Survey” (November 2001). The monthly requirement was estimated on the basis of the number of days wheat flour and rice given in the ration have been adequate for household consumption.

Total 17.10 16.19 14.8 15.34 16.02

(a) weighted average based on wealth class weights observed in the WFP’s Focus Group data set Source: WFP Iraq Planning Unit, Market Information Survey using WFP Food Monitors as Key Informants (Unpublished survey results-Cairo, April 2004)

The annual requirement to meet the level of demand observed above for 27.8 million people (expected mid-2004 population) will be 5.3 million tons of wheat flour and rice (4.0/4.7 million tons of wheat flour/wheat grain and 1.3/1.6 million tons of rice/paddy).43 Given that the maximum available from the rations is about 4 million tons, the additional demand for wheat flour and rice would be 1.3 million tons (1,000,000/1,170,000 tons of wheat flour/wheat grain and 336,000/392,000 tons of rice/paddy). Own-consumption: Available data on farming in Iraq does not allow an estimation of the distribution of farms by size and the number of the farm households involved. Therefore, it is not possible to get an estimate of the amount of production that may be retained for home-consumption. Until recently, farmers have been obliged to sell to the state silos. Hence, virtually no on-farm storage occurred. However, the FAO-WFP report indicates the possibility that some amount of grain may have been retained for use by the family and livestock or kept as a judicious reserve by those uncertain of the reliability of the food aid flour supply (and usually not more than 1.5 tons per household).44 However, the total quantity that may have been used for home consumption cannot be ascertained, as explained above. The price offered this year by the government for wheat purchases is $160 per ton (in 2003, this price was $105 per ton). A ton of wheat kept for home consumption may yield 750-800 kg of flour implying that the farmer could receive 300 ID per kg of flour sold (in the form of grain). The present price of ration rice in the market is about 150 ID per kg; it is undoubtedly economical for farmers, who are willing to consume ration wheat flour, to sell the wheat to the government and meet any additional consumption requirements with ration flour. Farmers who desire better quality wheat flour could pay a price up to 100 percent higher than the price of ration flour and be still viable in selling their produce to the government silos. Hence, it is unlikely that farmers’ retention of own produce makes a significant contribution to total consumption of wheat flour in their households. C. Non-cereal demand In the absence of Food Balance Sheets for recent years, available estimates of non-cereal foods for the years 1984-86, 1987-89 and 1989-91 were used to estimate the total amount of these foods that may go through the markets to serve an approximate mid-year 2004 population of 27.8 million people. These estimates are shown in Table 15. This estimation assumes that tastes and preferences of consumers would not have changed significantly since the mid-1980s. Economic impoverishment affecting a large segment of the population during the past 10 to 12 years may have diminished the demand for

43 Based on extraction rate of 85 percent from wheat grain/paddy to wheat flour/rice. 44 FAO-WFP 2003 report

most of these food commodities, especially the more expensive items such as meat, eggs, fruits and vegetables. However, one may safely assume that if economic normalcy were to return, food purchasing patterns may adjust quickly to achieve the levels that once considered normal in better times. The most important food category in this context is composed of fruits and vegetables. A total quantity over 6.4 million tons of fruits and vegetables may have to go through the marketing channels, which are more often than not regionalized for these commodities. How much of the fruits and vegetables are brought into the country from the neighboring countries or elsewhere is not known; it is likely that the vast bulk of these foods are locally produced. It is estimated that summer vegetables and fruits, particularly melons and watermelons, are grown in significant quantities as the most important irrigated crops and may have covered 47,000 ha in 2002-2003.45 Milk (other than butter) requirement is in the region of 1.7 million tons. Since the commencement of OFFP, milk powder has been in the food basket. According to Phase XII of the distribution plan (in 2003) the total amount of milk powder planned for distribution amounted to nearly 320, 000 tons. It is also likely that powdered milk may have been imported during the reference period in the 1980s. The FAO-WFP Special Report (2003) estimates the availability of milk through local production at 1.45 million tons in 2003/04. Nearly 900,000 tons of sweetners (mainly sugar) are estimated as the requirement. Under the OFFP Plan approximately 650,000 tons of sugar were to be imported for distribution in the ration. FAO-WFP Special Report does not indicate any local production of sugar. With regard to meat (red meat, poultry), the Report indicates an expected local production level of around 322,000 tons in 2003/04, implying that over half the indicated demand has to be met with imports. Similarly, it could be implied from the Report that only about 90,000 tons of eggs may be available from local production, whereas the requirement may be close to 130,000 tons. Fish production, according to the FAO-WFP Report could meet about 85 percent of the indicated requirements.

45 FAO-WFP Crop, Food Supply and Nutrition Assessment Mission to Iraq (Special Report September 2003)

Starchy roots (mainly potatoes) requirement is estimated at approximately 260,000 tons, whereas the FAO-WFP Report estimates an availability of potatoes of nearly 775,000 tons. In the 1970s, potatoes production was less than 100,000 tons and in the 1980s and up to 1993, production ranged between 125,000 to 250,000 tons.46 However, production levels sharply increased since 1993 and ranged between 400,000 tons and 730,000 tons until 2002. It appears that potatoes have served as food security insurance crop considering that production has tended to increase in a period that is marked by economic sanctions, insufficient food rations and severe drought spells. Per capita potatoes availability in the post-1993 period is two to three times greater than the levels observed for the second half of 1980s. If, in fact, potatoes serve as a food security insurance crop, then it is likely that production and consumption levels may decline once economic and political stability and prosperity are established.

5. Food price behavior

Market prices Since 1998, WFP has been collecting average monthly market prices of all the commodities in the ration basket. Rice prices are obtained separately for imported and local rice. Prices are also collected for additional twelve items –onion, tomatoes, potatoes, dates, eggs, local cheese, fresh milk, fish, chicken, lamb, kerosene and butane gas. In addition, the prevailing exchange rates have also been recorded. Price data covers all the 18 governorates.

46 FAO FAOSTAT data set

1984-86 1987-89 1989-91 Average Estimate for 28 mn FAO-WFP people (tons) 2003 estimate (a)

Vegetables 130.5 117 107.9 118.47 3,317,067Fruits 129 106.4 99.7 111.70 3,127,600Milk (excluding butter) 75.8 62.9 46.3 61.67 1,726,667 1,451,100Sweetners 35.6 35.3 25.4 32.10 898,800Meat 28.1 26.6 17.2 23.97 671,067 322,000Oils and fats 17.8 18.9 14.2 16.97 475,067Starchy roots 8.9 8.7 10.2 9.27 259,467 774,638Pulses 5.7 5.4 4.6 5.23 146,533 111,234Eggs 6 4.6 3.2 4.60 128,800 902,000,000Nuts and oil seeds 1.4 1.5 1.7 1.53 42,933Fish 1.4 1.1 0.9 1.13 31,733 26,804

Source: Based on FAO Food Balance Sheets cited in WFP Iraq-North Coordination Office

Table 15: Apparent consumption of non-cereal foods (kg/per capita)

(a) In the FAO-WFP estimate, meat includes red meat and poultry; starchy roots include only potatoes,

"Oil for Food-Food Basket Adequacy Assessment Survey (November 2001); and, FAO-WFPCrop, Food Supply and Nutrition Assessment Mission to Iraq (Special report September 2003)

and eggs are indicated as numbers.

Using the monthly price data on wheat flour, local and imported rice, an attempt is made to identify the direction of long-term trend in the price movements using 12-month moving averages. The analysis is conducted on four regions, given below, identified for purposes of analysis: Northern region: Dahuk, Erbil, Sulaymaniyah Northern-central region: Ninewa, Tameem, Central region: Anbar, Babil, Baghdad, Diyala, Karbala, Salah Al Din, Wassit Southern region: Missan, Muthanna, Najaf, Qadissiya, Thi-Qar Chart 3 depicts the 12-month moving averages of wheat flour prices and Chart 4 shows the movements of the monthly average prices. The trend in wheat flour prices has been somewhat similar in all three regions until about the third quarter of 2002, when the trend in the Northern region takes a distinct upward trend. This is the period that marked the beginning of real expectations of invasion and war. It appears that these indications have had a special impact on the Northern region. During this period, regions in the center/south distributed the food rations of several months in advance in anticipation of the war; such distribution did not take place in the north.47 In the other three regions, the trend seems to be downward during this period and up to about end of 2003 apparently due to the forward release of rations. Another characteristic of these prices is the substantial differences in the absolute price levels during most of the period, with the central and southern governorates having lower prices relative to others. The northern region has a distinct political identification, a fact recognized in the PDS under OFFP, wherein the World Food programme was given responsibility for overseeing food distribution. The region also has a different trading regime that involves cross-border trade with the neighboring countries. These are some of the factors that account for the apparent segmentation of the north regional market. In the case of imported rice, the three regions other than the Northern region there has been virtually no changes in the long-term trend in prices (Chart 5). In the Northern region, the nominal prices have been at a higher level than the rest of the regions and, as in the case of wheat flour, a sharp upward trend is seen towards the end of 2002 (Chart 6). The picture on trends is different for Iraqi rice (Chart 7). In the three lower regions, prices have trended upwards almost continuously until the end of 2002, after which they take a downward trend even during and after the war. Again, the price behavior in the Northern region is uniquely different from the rest of the country (Chart 8). The annual variations in cereal prices show somewhat similar patterns in the case of wheat flour and imported rice (Table 16). These are the two major commodities that were given in the ration. The very low degree price variations of these commodities, as indicated by the coefficient variations that range between 5 and 7 during the years 2000 and 2002 could be taken as a reflection of a steady flow of the rations of these two items. As would be expected, the prices have been more volatile during 2003, more so in the case of imported rice. The average price of Iraqi rice rises sharply during 2001 and 2002 , apparently due to the shortfalls in domestic supply, and gets back to around the 2000 level in 2003. Almost all Iraqi’s have a preference to Iraqi rice but the demand for it more 47 Personal communication, WFP Iraq Planning Unit

concentrated among the higher income classes. Markets seem to have responded satisfactorily to the forces of demand and supply of this commodity and sharp variations in the price of Iraqi rice are unlikely to cause nutritional or social problems, as long as the total supply is supported by imported rice (as in the present situation through the rations).

Chart 3: Moving averages of wheat flour prices 1998-2003

Chart 4: Monthly wheat flour prices 1998-2003

Chart 5: Moving averages of imported rice prices 1998-2003

Chart 6: Monthly imported rice prices 1998-2003

Chart 7: Moving averages of imported rice prices 1998-2003

Chart 8: Monthly Iraqi rice prices 1998-2003

The coefficients of variation (CVs) in regional prices of the three cereal commodities are also shown in Table 16. CVs capture the degree of variations which were indicated in the previous charts. The highest degree of price variations for wheat flour and imported rice has been experienced in the Northern region, while it has seen the least variation in the price of Iraqi rice probably because the bulk of local rice is grown in this region. Variations of the cereal prices in the other three regions have been close in terms of the magnitudes, except, perhaps, in the case of wheat flour in the Central region that shows the least degree of variation.

Table 16 : Average prices, variation, minimum and maximum prices of cereal items, 1998-2003

Commodity Year Mean ($/kg)

CV(a)

(%) Minimum

($/kg) Maximum

($/kg) Wheat flour 1998 0.10 18 0.07 0.12 1999 0.13 19 0.10 0.17 2000 0.16 5 0.14 0.17 2001 0.14 5 0.13 0.16 2002 0.14 7 0.13 0.16 2003 0.17 44 0.12 0.38 All years 0.14 25 0.07 0.38 Iraq rice 1998 0.18 7 0.16 0.20 1999 0.25 24 0.19 0.37 2000 0.35 17 0.28 0.44

2001 0.53 7 0.43 0.56 2002 0.56 13 0.38 0.64 2003 0.37 17 0.31 0.39 All years 0.39 37 0.16 0.64 Imported rice 1998 0.17 8 0.14 0.19 1999 0.20 18 0.15 0.26 2000 0.19 6 0.18 0.21 2001 0.17 5 0.15 0.17 2002 0.17 6 0.16 0.20 2003 0.31 83 0.17 1.05 All years 0.21 55 0.14 1.05 (a) Coefficient of Variation Source: WFP Prices Data Set Deflated prices Current prices can be misleading because inflation raises all prices. Therefore, it is necessary to adjust the prices by taking out the impact of inflation in order to understand the movement of real prices. Table 17 provides the nominal average prices of wheat flour, imported rice and Iraqi rice for the period 1998 to 2002 and the deflated prices. Nominal prices were deflated by using the Consumer Price General Index Numbers published by the Central Bank of Iraq.48 Between 1998 and 2000, nominal price of flour increased by 60 percent but the real prices increased only by 30 percent (see Chart 9) and the decline in the real price (by 40 percent) after 2000 has been more rapid than the decline in nominal prices (by 10 percent). It should be noted that domestic production of wheat during 1999-2000 period was affected by drought but recovered during the succeeding years. It also appears that the PDS distribution may have had an improved performance since 2000. In the case of imported rice, real prices have been on a distinct declining trend while the nominal prices have had some degree of fluctuations (Chart 12) and in the case of Iraqi rice, real price movement shows much less volatility than the nominal price movements (Chart 11).

Table 17 : Nominal and deflated cereal prices, 1998-2002 (1997=100) (a)

Year Wheat flour price ($/kg)

Imported rice ($/kg)

Iraqi rice ($/kg)

Nominal Deflated Nominal Deflated Nominal Deflated 1998 0.10 0.09 0.17 0.15 0.18 0.16 1999 0.13 0.10 0.20 0.15 0.25 0.19 2000 0.16 0.12 0.19 0.14 0.35 0.25 2001 0.14 0.08 0.17 0.10 0.53 0.33 2002 0.14 0.07 0.17 0.09 0.56 0.29

48 Central Bank of Iraq. December 2003. Statistical Bulletin-Special Issue.

Source: Central Bank of Iraq, Statistical Bulletin -Special Issue-(December 2003) (a) based on the general index numbers

Chart 10:Nominal & deflated market prices of imported rice1998 - 2002

0.00

0.05

0.10

0.15

0.20

0.25

1998 1999 2000 2001 2002

$ per kg

NominalDeflated

Chart 9: Nominal & Deflated Market Prices of wheat flour1998-2002

0.00

0.05

0.10

0.15

0.20

1998 1999 2000 2001 2002

$ per kg

NominalDeflated

Chart 11: Nominal & deflated market prices of Iraqi rice

1998 - 2002

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1998 1999 2000 2001 2002

$ per kg

NominalDeflated

Seasonality Agricultural commodities could be expected to exhibit seasonal price movements that are tied to the nature of the crop cycle. Wheat and rice are grown in Iraq, with domestic wheat production on the average accounting for about 30 percent of the requirement in recent years. The contribution from Iraqi rice to total rice requirement is much less—about 12 percent. Examination of seasonality of the prices of these crops is particularly problematic in Iraq because of the PDS that takes care of the bulk of the consumption needs. Market prices are likely to be affected by the supply variations in the government program, which are typically caused by random variations in import flows. Notwithstanding these concerns, seasonality of grain prices was examined using the monthly price data available from mid-1998 to end 2003. Seasonal price patterns are examined by means of a seasonal price index based on 12-month moving averages of monthly prices. The moving average helps to isolate the seasonal pattern by removing the influence of cyclical price movements and long-term trends. The index is derived by expressing the average price for each month in a series as a percentage of the moving average. An average of a given month’s percentages from all years under consideration provides the monthly numbers for the seasonal index. Seasonality in wheat flour prices for all Iraq is depicted in Chart 12 by plotting the monthly index points. It should be noted that open market wheat flour prices are influenced on the supply side by the amount of ration wheat flour,and the quantities of ration flour leaked to the market, quantities of higher quality wheat flour coming from neighboring countries to meet the demand for higher quality confectionery and bread and the locally grown wheat. Domestic wheat harvesting occurs primarily in May and June. It appears from Chart 12 that the impact of added supplies on lowering wheat prices occurs just prior to May and continues until perhaps mid-July, allowing the prices to be lowest during these months. However, the price decline seems to commence after February (well before the harvesting season sets in) after an upward trend that begins in August. Release of stocks and increased supplies of close substitutes (rice) are possible reasons for this behavior. The latter may not be a relevant reason given that the price Iraqi rice, a substitute, is on an upward trend during the same period (Chart 13). This study could not find evidence that farmers and/or wholesalers tend to carry stocks to benefit from seasonal price changes. The reason for this could be the insufficient gap between the peak and trough prices relative to investment costs of storage. The harvesting season for Iraqi rice begins in September and continues through October. As depicted in Chart 13, a downward trend in Iraqi rice price also begins about the same time and continues until about end January after which it increases reaching the highest

level in May-June. No strong reasons can be found to explain the dip that occurs since then and continues until August. The special role of Iraqi rice amongst food grains, the relatively small quantities that move in the market and the random factors that affect the availability of imported rice may be contributing to unpredictability of the behavior of Iraqi rice prices.

Chart 14: Seasonality in W heat Flour Prices: All Iraq: M ay 1998 - Dec 2003

70

80

90

100

110

120

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Seasonal Index

W heat F lour

Food grain market integration: A large number of food grain markets at the regional level operate to respond to the demand for and supply of food commodities. These markets are generally linked to one another but the extent of the linkages may vary according to a number of factors including proximity, transport availability, road and railway linkages, restrictions from the government and methods of transmission of market signals. Theoretically, under assumptions of full competition, markets are integrated when the price of a commodity in one market differs from another only to the extent of the cost of transportation between the two markets. This implies that a price change in the “export” region will induce a price change in the “import” region in the same direction and of the same degree. Although transportation is the key factor affecting market integration, other factors including the spread of price information, seasonal factors, inflation and government intervention can also affect integration. The theory of market integration implies that in well-integrated markets, production, consumption, trading and other related activities are being conducted efficiently. Lack of integration of market segmentation implies that some consumers, producers/suppliers and marketing agents are operating at less than the potential levels of efficiency. Correlation analysis: One simple way (though inadequate) to examine market integration is to consider correlation of price series between different markets. If markets are integrated, prices should move together, which should result in statistically significant strong price correlations. Typically, a strong correlation is denoted by a correlation coefficient close to one; closer the correlation coefficient to one the stronger the price interrelationship. Lack of significant correlation may imply that the markets under study are not integrated but segmented. If markets are segmented or weakly integrated, reasons

Chart 13: Seasonality in Iraqi Rice Prices: All Iraq: May 1998 - Dec 2003

70

80

90

100

110

120

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Seasonal Index

Iraqi Rice

for such occurance have to examined, which should point to the nature and type of remedial measures in terms of policy and/or investments that may have to be in place for the markets to increase efficiency. It should be noted that tests of market integration that are based on correlation coefficients of local market prices may mask the presence of other synchronous factors, such as general price inflation, seasonality, population growth, procurement policy, distribution policy and so forth.49 One way of overcoming this problem is to estimate correlation coefficients based on price first differences (taking the difference between the current month’s price and last month’s price in a price series as the variable to be used rather than the direct monthly price itself). Taking first differences may eliminate the fixed components of the error term and hence reduce the impact of common trends on correlations. Correlations of price movements for wheat flour, imported rice and Iraqi rice between pre-identified set of regional clusters were examined. The regional clusters were identified purely on geographic proximity criteria, although a preliminary cluster analysis helped identification of some commonalities and differences. For example, it would have been logical for the governorate, Karbala, to be included along with Najaf or Babil and Qadissiyah, but cluster anaysis showed that Karbala stood out as quite an independent market. Hence, Karbala was placed as a cluster by itself. The average correlations of first differences of cereal prices of each cluster related to all other clusters are shown in Table 18, and the correlation matrices for the three commodities are given in Tables 19, 20 and 21. It appears that the markets in the three northern governorates for wheat flour and imported rice, two commodities that are dominant in the ration, have functioned quite independently from the rest of the country. Even in the case of Iraqi rice, there is no strong evidence that prices in the North are related to prices elsewhere. Previous Charts showing price movements also implied this segmentation of the Northern markets. About a quarter of the country’s wheat production takes place in the northern region and the region has several trading corridors with the neighboring countries, Iran and Turkey. There would certainly be trade between the north and the rest of the country. What price data reveals is the absence of any systematic relationship in responding to demand and supply situations. Even in the center/south regions, there is no strong evidence of market integration related to wheat flour and imported rice. Most of the supply of these two food grains to consumers comes from the PDS. Open market demand for these commodities is a residual demand, which is minimal and vary according to quantities and quality of the monthly rations. The additional demand could also be influenced by temporary breakdowns in the supply chain of PDS in some regions and the extent to which ration flour is exchanged for bread by the beneficiaries.

49 These issues are discussed in: Blyn, G. 1989. Price series correlation as a measure of market integration. Indian Journal of Agricultural Economics, 28, no 2 ; Timmer, Peter C. 1974. A model of rice marketing margins in Indonesia. Food Research Institute Studies Vol. 13, no. 2 :, Goletti F, Badiane, O and Jayashree Sil, 1994. Foodgrain marketing under market reforms in Egypt. MSSD discussion paper, IFPRI

Compared with wheat flour and imported rice, inter-market price correlations for Iraqi rice have higher average coefficients in the center/south. However, pair-wise coefficients vary quite substantially. The quantities of Iraqi rice that move in the market are much smaller than wheat flour or imported rice. It appears that the markets have responded reasonably well to the supply and demand factors related to Iraqi rice, which has a special place in the Iraqi diets.50

Table 18: Average Correlations by Cluster(a) for Cereals(b)

(First differences of prices from May 1998 to December 2003) Cluster Wheat flour Imported rice Iraqi rice

1 -0.18 -0.09 0.28 2 0.54 0.61 0.70 3 0.43 0.55 0.77 4 0.54 0.58 0.73 5 0.54 0.59 0.78 6 0.40 0.60 0.78 7 0.26 0.57 0.76 8 0.36 0.40 0.75

(a) Following are the clusters: Cluster 1: Sulaimania, Erbil and Dahuk Cluster 2: Ninewa and Tamim Cluster 3: Salal Al Din and Diyala Cluster 4: Baghdada Cluster 5: Babil, Wasit, Qadisya and ThiQar Cluster 6: Muthana, Basra, Missan and Najaf Cluster 7: Anbar Cluster 8: Karbala (b) All the correlation coefficients were significant at 5% level. Source: Calculated form the WFP Iraq Price Data Set

50 The search for evidence of market integration require more rigorous analysis than simple correlation analysis, for example cointegration analysis which tests for market integration by taking the presence of stochastic trends in the price series into account. Such analysis was not undertaken due to the limited length of the price series.

Table 19: Wheat flour inter-cluster correlations of price first differences

CLSTR1 CLSTR2 CLSTR3 CLSTR4 CLSTR5 CLSTR6 CLSTR7 CLSTR8 CLSTR1 1.00 -0.37 -0.38 -0.11 -0.29 -0.31 -0.21 -0.10CLSTR2 1.00 0.55** 0.70** 0.76** 0.49** 0.28** 0.51**CLSTR3 1.00 0.49** 0.66** 0.55** 0.22* 0.44**CLSTR4 1.00 0.71** 0.35** 0.18 0.32**CLSTR5 1.00 0.68** 0.29** 0.47**CLSTR6 1.00 0.35** 0.40**CLSTR7 1.00 -0.05CLSTR8 1.00

Table 20: Imported Rice: Inter-cluster correlations of first differences of prices CLSTR1 CLSTR2 CLSTR3 CLSTR4 CLSTR5 CLSTR6 CLSTR7 CLSTR8 CLSTR1 1.00 -0.17 -0.02 0.05 -0.13 -0.17 -0.23 -0.10CLSTR2 1.00 0.74** 0.68** 0.72** 0.79** 0.69** 0.24**CLSTR3 1.00 0.50** 0.75** 0.72** 0.64** 0.17 CLSTR4 1.00 0.62** 0.58** 0.65** 0.26**CLSTR5 1.00 0.74** 0.62** 0.28**CLSTR6 1.00 0.61** 0.31**CLSTR7 1.00 0.22*CLSTR8 1.00

Table 21: Iraqi rice inter-cluster correlations of price first differences CLSTR1 CLSTR2 CLSTR3 CLSTR4 CLSTR5 CLSTR6 CLSTR7 CLSTR8 CLSTR1 1.00 0.24** 0.31** 0.17 0.31** 0.35** 0.34** 0.29**CLSTR2 1.00 0.72** 0.66** 0.65** 0.81** 0.58** 0.61**CLSTR3 1.00 0.69** 0.81** 0.85** 0.75** 0.75**CLSTR4 1.00 0.67** 0.65** 0.70** 0.67**CLSTR5 1.00 0.89** 0.83** 0.87**CLSTR6 1.00 0.75** 0.78**CLSTR7 1.00 0.80**CLSTR8 1.00

6. Market infrastructure Iraq’s economy has been dominated by a centrally planned and autocratic state with its controlling impact on almost every economic activity including internal and external trading and the purchase, storage, processing and distribution of food and agricultural commodities. In particular, the current food marketing infrastructure has been deeply moulded by the long-standing state-sponsored food distribution system, the PDS. PDS operations The Ministry of Trade (MOT) has been the government agency responsible for the operation of PDS from its inception. In the field level operations, MOT has had the responsibility for distributions in the center and southern regions of the country, while in the three northern governorates, WFP has been entrusted with the transport, handling and distribution of food commodities. There have been no large trading companies with parallel networks. The government held all the stocks—those purchased under OFFP and under the domestic wheat procurement programme. MOT has been responsible for implementing the foreign economic and trade policy of the government. These policies have normally depended on the political relations of Iraq with other countries. MOT would sign economic and trade agreements, protocols, memoranda of understanding or direct contracts with foreign countries or companies. In essence, MOT has been charged with the responsibility of meeting the needs of the local markets. The organization of MOT consists of divisions/units within MOT headquarters (Foreign Economic Relations, Planning and Follow-up, Administration and Finance, Company Registration, and Monitoring/Controlling of Trade Activities), and divisions outside the headquarters. The latter include:

- State Company for Foodstuff Trading (responsible for importing the food basket items distributed under SCR 986, except for wheat flour and rice; the company also has the responsibility to maintain regular supplies of food items not included under the PDS);

- Grain Board of Iraq (responsible for importing wheat, barley and rice and their distribution to the silos and warehouses and delivery of wheat grain to the mills; the Grain Board also procures local production from farmers);

- State Company for Grain Processing (in charge of all milling activities, including maintenance of mills, to ensure smooth PDS operation; it is also responsible for delivery of wheat flour from the mills to the flour agents); and,

- State Company for Exports and Imports (responsible to oversee the exports and import activities of the private sector)

Most imported commodities for PDS arrive at Port Um-Qasir, but significant quantities also arrive over land from Turkey, Syria and Jordan. Independent inspection of commodities imported under OFFP at entry points is carried out (by COTECNA). MOT is responsible for transporting commodities from the points of entry to the programme-allocated facilities in the 15 governorates of the Center/South. There are currently 30 silos, 25 warehouses and more than 140 mills. MOT also assured delivery of commodities to the two transit WFP warehouses for the North located in Mosul and Kirkuk.

Wheat grain is delivered to programme-allocated silos in the various governorates of the Center/South. From the silos, wheat grain is allocated to mills in the Center/South which are working under PDS. Milled flour from the mills is collected by the flour agents of PDS for onward distribution to the beneficiaries. Wheat allocated for the North has also been milled in the Center/South and then sent to the warehouses located in the North, from where the local authorities organize dispatch to flour agents. In the fifteen governorates of the Center/South, the secondary transportation and delivery of food to beneficiaries have been arranged through some 33,000 food/flour agents. In the North, WFP has used private transporters to move food from its transit warehouses in Mosul and Kirkuk to WFP-managed warehouses in the three northern governorates. Each flour/food agent may serve around 100-150 households, all of whom have ration cards. These ration cards contain demographic information needed for PDS operations. Through the registration procedures households have to go through in obtaining ration cards, the government is provided with a data-base and the ability to monitor population movements and assure proper distribution. Ration cards are renewed annually. They are linked to a particular food agent from whom the households have to collect the monthly rations. The distribution cycle is pre-determined by the Ministry of Trade and distributions are usually completed within the first 20 days of the month. Grain silos and mills Silos: Grain silos are for the bulk storage of imported and locally procured wheat grain. Silos are also used to store rice imported for PDS distribution. The mills operating in the PDS are almost exclusively for processing wheat grain. The State Company for Grain Trading (known as the Grain Board) and the State Company for Grain Processing, both under MOT, are responsible for the storage and processing of wheat. The Grain Board manages the activities of the silos, including grain procurement and quality analysis, transfers between silos, distribution to the mills, spare parts procurement, equipment modernization and facility expansion.51 Under OFFP, funds have been allocated for procurement of spare parts to recondition the equipment and machinery in old and ageing silos, for modernization of equipment and storage and handling capacity increase. The transport of grains was done in the past taking full advantage of the rail and river transport network. Where possible, silos have been built with the capability to receive and load cereals from railway wagons and barges. At present, due to insufficient railway capacity and non-existent river transport, the transport from the entry points is done almost exclusively by road. The virtually exclusive use of road transport increases costs, increases losses and resulted in more investments to adapt the layouts to the extensive use of trucks. Most of the silos have open-area storage used mainly to store locally produced wheat. Close to two important silos (Dora and Taji) new flourmills are being constructed, which will eliminate additional handling and transport demand. 51 The discussion on grain silos and mills and transport is based largely on the on the reviews of these sectors carried out by WFP in 2002.

Before reaching the flourmill, wheat grain would, on average, pass through two silos. In the second silo, the imported wheat is blended with locally produced wheat. The locally procured wheat is bagged and stored in open areas covered with tarpaulins. The quality of the local grain is different from the imported ones. The existing laboratory facilities required to determine the best blend proportions and control the chemical and biological behavior of the grains during milling are in poor condition. This is overcome in part by the experienced technicians, who give a visual diagnosis of the quality of the product. However, modernized laboratories will increase milling efficiency. In the distribution of silo capacity within the regions, the north central governorate of Ninawa occupies the dominant place (see Table 22 and Map 3 ). Ninawa, located in the northern part of Iraq, where the main wheat growing areas exist, has 14 out of 40 silos. Silos in Ninawa have a combined capacity of nearly 750,000 tons. There are no government-operated silos in the three northern governorates of Dahuk, Erbil and Sulaymaniah, whose PDS requirements are met by the Ninawa capacity. The next highest concentrations of silos are in Baghdad, Basrah and Diyala. In general, wheat storage capacity is sufficient to meet the requirements of the populations in the governorates, although the capacities in the governorates of Thiqar, Muthanna and Missan may need further capacity enhancement to cater to population increase. Next to wheat, rice occupies an important place in the PDS. There are six rice silos (see Map 4) in the rice growing governorates of Najaf (2), Qadissiyah (2), Babil (1) and Maysan (1). In Baghdad there is one rice silo. Rehabilitation and expansion work on many of these rice silos are under way. Mills: The State Company of Grain processing, commonly known as Grain Processing (GP), controls activities of the government and private mills in contract with the government. GP controls the monthly milling quotas, spare parts procurement and distribution and programmes for mill modernization. The total number of mills in PDS is 133, out of which only two are government-owned. The total milling capacity is estimated at 17,155 metric tons per day at 80 percent capacity utilization and 75 percent efficiency. This capacity works out to an yearly capacity of about 3.7 million tons, sufficient to meet the PDS obligations of the current population. Baghdad, due to its high population and central location , has 40 mills with a combined capacity of approximately 6,000 metric tons per day. Ninawa, a main grain producing area and the supplier of flour to the three Northern governorates, has a combined daily milling capacity of about 3,100 metric tons (see Map 5). In general, the monthly milling capacity available in each governorate is in excess relative to the PDS needs as well as meeting the observed additional demand for wheat flour to enable a per capita consumption level of 12 kg/month (Chart 14).

Table 22: Wheat and rice storage and wheat milling capacity

Governorate Grain Silos

(Number)

Storage Capacity

(mt)

Rice Silos

(Number)

Rice storage Capacity

Flour Mills

(Number)

Milling Capacity (MT

Monthly)

Anbar 1 10,000 - - 4 19,800Babylon 1 75,000 1 15,000 14 29,400Baghdad 8 405,000 1 15,000 38 203,550Basrah 2 205,000 - - 9 43,650Dahuk - - - - - - Diyala 2 200,000 - - 9 29,400Erbil - - - - - - Kerbala 1 10,000 1 15,000 5 13,800Missan 1 10,000 - - 4 9,900Muthanna 1 10,000 - - 2 6,000Najaf 1 45,000 2 30,000 5 18,150Ninewa 15 744,000 - - 21 102,000Qadissiya 1 15,000 2 30,000 4 30,000Salah al-Din 2 55,000 - - 4 14,400Sule - - - - - - Taamim 2 95,000 - - 8 40,500Thiqar 2 20,000 - - 5 17,400Wassit 2 32,000 - - 4 16,800

Total 1,931,000 105,000 594,750

Map 3

Map 4

Map 5

Chart 14: Monthly milling capacityversus

wheat requirement at governorate level

0

50,000

100,000

150,000

200,000

250,000

Anbar

Babylon

Baghdad

Basrah

Diyala

Kerbala

Missan

Muthann

Najaf

Ninewa(+Kurdish)

Qadissiya

Salahal-Din

Taamim

Thiqar

Wassit

Governorate

MTWheatflour

Capacity per monthReq. (9kg per month)Req. (12kg per month)

Most of these were erected more than 25 years ago and are technologically outdated or deficient. Under OFFP, 20 new mills have been ordered with an estimated daily milling capacity of 3,750 metric tons. These should be operational in the coming period. Mills produce flour as per specifications set down by the government, which stand at 85 percent extraction (86.4 percent on original moisture basis) of flour from wheat grain. The relatively high extraction rate is expected to yield the quality of flour usually used for baking the most common bread types. Current milling practices have tended to yield high ash content implying presence of relatively high contaminants in the flour. This is due to stipulated high extraction rates and the absence of efficient cleaning systems in the mills. With a good cleaning system, less contaminants go through milling, allowing a higher recovery of flour in the bran. Another issue is “tempering”- the need to add water and allow tempering to harden the bran and mellow the endosperm. Efficiency in this process is a function of tempering devices that control moisture to desirable levels. WFP reports have also noted the need to upgrade the cleaning apparatus to eliminate impurities such as soil, fine dust, small seeds and wheat beard. Although it may seem that the silo capacity may have to be enhanced to meet an increasing demand for grain storage, any expansion has to be cautiously evaluated in the context of the future role of the PDS. If over time, the public sector is to move away from grain storage, processing and distribution, what would be the mechanics and policy implications of allowing the private sector the use of a vast asset structure concentrated in the public sector? There is also the issue of the large amount of rehabilitation and modernization of the existing mills required whether the PDS is expected to change or not. Transport Iraq’s transport infrastructure greatly benefited from the concerted push for economic growth in 1975-80.52 The infrastructure received much damage from the 1991 war; its recovery and rehabilitation have been slow due to lack of resources during the sanctions period. The 2003 conflict inflicted further damages but in the immediate aftermath of the war, reconstruction efforts were initiated and are progressing currently. Railways, roads and ports: The railway system has three major routes: the Baghdad-Kirkuk-Erbil line, the Baghdad-Mosul-Yurubiyah line, with links with the Turkish system, and the Baghdad-Maaqal-Umm Qasr standard line. In 2000, the line between Mosul and Aleppo, Syria’s second city, was reopened. Services provided by the railway system have been infrequent, unreliable and inadequate, owing to the dire state of the infrastructure. The current limited capacity of the railways has exerted vast demand for road transportation. To a large extent, the upgrading and new construction of the road system has been motivated by military reasons. The 39,000 km road system was subject to major development before 1991; the border roads linking Iraq with its western neighbors were

52 Economic Intelligence Unit. July 2003. Ibid.

much improved and many of the highways towards Iran were upgraded.53 Post-Gulf War reconstruction of the damaged road infrastructure has been successful and reconstruction of roads and bridges damaged by the 2003 war is under way. Umm Qasr, Iraq’s only port, underwent major modernization and expansion after the Iraq-Iran war ceasefire in 1988. With the commencement of the OFFP, this port assumed great importance in facilitating the import of a large portion of the food and other humanitarian supplies coming under the OFFP. The dilapidated condition of the port caused much delay requiring concerted efforts to upgrade the port’s condition. It has been reported that the port is operating at 60 percent of the designed capacity due to, inter alia, wreckage in the approach channel and berthing areas.54 Work continues on restoring the facilities at the port, completing dredging work and assuring that large-scale tankers can dock and off-load. There are basically three actors involved in the transportation of food within the country: the Ministry of Transport and Communication (MOTAC), Ministry of Trade (MOT) and the private sector contractor-operators. Within MOTAC, the State Company for Land Transport has the responsibility to facilitate the road transportation of state-goods, imports and exports. The Company has several service agreements with various private sector agents for a total of 4,025 trucks to augment its fleet capacity. About 50 percent of the Company’s own fleet is normally utilized to service transport demand from other state companies and ministries. Within MOT, there are several companies (Grain Board, Food Stuff, Grain Processing and General Automobile) with dedicated fleets for the transportation and distribution of food-related commodities throughout the center/south. Private sector fleets are comprised of individual operators, who are contracted through agents or are directly registered with the local warehouses and distribution facilities. The bulk of these operators are single-truck owners. The private sector fleets have continued to be the dominant force in the continuum of the various transport and distribution chains. However, the current fleet is aging, averaging over 22 years, and are increasingly becoming unreliable and not capable of undertaking long-distance trips.

8. Conclusions

1. The source of a relatively large part of Iraq’s food grain marketing activities is the public distribution system. Large-scale state intervention in economic activities, such as food marketing, is known to breed corruption, which provides a way out to cover up inefficiencies, inadequacies and sub-standard delivery of goods and services. A good stock-taking of these inefficiencies is not currently available, but the sub-standard delivery of food is reflected in the large-scale incidence of resale and exchange of wheat flour received under ration cards. Universal distribution of relatively large quantities of subsidized food grain has also led to informal export activity causing losses to the economy. A state-dominated food grain marketing

53 Economic Intelligence Unit. July 2003. ibid 54 World Food Programme. 2002. Iraq Road and Transport Review 2002

system has deterred development of food markets, as evidenced in the segmentation of the markets in the North from the rest of the country and the price behavior in other markets that does not reflect adequate integration of regional markets. With the removal of sanctions the justification for universal distribution of subsidized food has lost its relevance in present Iraq. Prior to sanctions food grain marketing activities were handled by the private sector. A return of food grain marketing to the open market, where supply and demand forces will determine resource allocation, is a necessary step towards increasing food grain marketing efficiency. The fact that about 30 percent of the food grain marketing activities is handled by the private sector even under the present PDS will help minimize risks of market disruptions that may arise in the initial phases of market liberalization.

2. However, food grain market liberalization has to be cautiously undertaken. State

intervention in food marketing will have to continue for some time to come because of the need to provide a food safety net to the weaker sections of the population. According to on-going studies by WFP, at least 50 percent of the population is in poverty and about 25 percent of the population is highly vulnerable to food insecurity. Past lack of economic growth and other social and political factors have contributed this situation. Any policy or investment assistance for improving market efficiency has to take place in this context.

3. There is scope to increase the market share of the private sector in food marketing

while addressing the demand for social protection. The key is to change the present universal food transfer programme to a targeted programme. A targeted food transfer programme will not only release a part of the food marketing activities to the private sector, it will also increase the efficiency of the transfer programme itself. Under the sanctions regime, a universal PDS may have had several objectives to serve: for example, these could have been assuring basic food security to the entire population, maintaining political stability and defiance of the objectives of sanctions. In the post-war Iraq, the situation has changed where concerns for economic efficiency of public expenditures would move to the center stage. The main efficiency criterion in this context would be the cost of providing an intended degree of nutritional welfare to a target population. According to the allocation for the food sector in Phase XIII of OFFP, the programme spent about $0.11 to transfer 1000 calories.55 If the objective of the programme is viewed as assisting food consumption among low income households, say among the lower 50 percent, the OFFP allocation implies that it takes $0.19 to transfer 1000 calories to the target group. An additional $0.08 has to be spent because the entire population is given food; this additional amount is the cost of inefficiency arising out of non-targeting. This excess amount expended could well be used to enhance opportunities for the poor to move out of poverty, for example by focusing on in pro-poor investments to improve education, health, skills and economic infrastructure in poor regions.

55 World Food Programme. 2003. Options for modification of PDS. mimeograph.

4. While a targeted transfer programme will help the expansion of open market activity, the targeted programme itself could be fashioned to enhance private sector participation. A cash transfer programme to the needy will eliminate the need for the government to be involved in commodity marketing, except perhaps in maintaining a strategic food grain reserve to respond to any short-run market supply disruptions. However, the cash transfer option (or any other option) has to be carefully evaluated as to the potential benefits in terms of market development versus the potential loss of intended nutritional benefits when moving away from commodity transfers.

5. For over 12 years, the food markets have operated under state control and without

adequate resources or the incentives for modernizing marketing infrastructure. Limited opportunities for expansion have stymied private sector investments. This study revealed the presence of segmented markets between the north and the center/south regions and weak inter-market relationships in food grain marketing in the center/south regions. This situation is not surprising given the high degree of state intervention in food grain marketing observed since 1990. Could the private sector take up the challenge of conducting competitive trading operations meeting market demand for food grain and bringing about greater efficiency in resource use? Prior to 1990, food grain marketing was carried out in the open market and even under PDS environment, the private sector has accounted for about 30 percent of marketing activities. While these factors augur well for a policy change towards market liberalization, the present conditions underwhich the private sector operates have to be well understood. The current system has resulted in the private sector being faced with only a thin spread of both machinery and equipment and services (banking, credit). Grain storage is predominantly under state control; milling and transport, though privately owned, largely depend on the state for their sustenance. A comprehensive assessment of the marketing facilities and the investment needs for rehabilitation, expansion and modernization and the identification of the incentive structure needed to ensure improvements are necessary pre-requisites to any market liberalization effort in Iraq.

6. The change over to market liberalization needs to have a short-term agenda and a

medium term agenda with the former focused on even greater state participation to avoid supply disruptions and the latter focused on removing constraints to the private sector taking over the marketing responsibilities. The change over strategy will have to identify the key constraints that will be faced by the private sector. Some of these include the lack of grain storage under their control, the relative inexperience in large-scale importation of food and inadequate financing mechanisms. A short term adjustment phase where public sector facilities could be leased out and assuring sufficient government stocks to meet any supply shortfalls would be steps in the correct direction. In the medium term, it may be necessary to assure a banking structure that could cater to the large financial needs and external trading transactions as well as establish the required legal and regulatory structures that would facilitate orderly conduct of trade and marketing. Already there are concerns about quality and standards of food commodities,

which may worsen under a liberalized food marketing system, if the required regulatory framework and resources for proper implementation are not in place.

7. Improving marketing efficiency may also entail large-scale public sector

investments to upgrade marketing infrastructure such as the Umm Qasr port, highways, railways and waterways. These issues, especially the upgrading of the only port, it is learnt, are already being addressed. The condition of the road transport fleet, both owned by the public and private sectors, is another issue of concern. Regular delays in bringing food commodities from the Umm Qasr port have been experienced. The public sector fleet has been subject to damage or loss due to conflict and the security situation. It appears that the MOT is taking action to upgrade and strengthen its fleet, but the focus has also to be extended to the fleet owned by the private sector in order to find ways and means of supporting improvements.

8. Policy changes toward market liberalization, safety net provision and

infrastructure development have to be accompanied by a strategy for capacity building and results-based monitoring. Available human resources at management and operational level have worked under central planning subject to various political imperatives for a long period of time. There is hardly any evidence of a focus on monitoring programmes in relation to achievement of expected results. Monitoring is especially important in the case of safety net operations. In this regard, the government of Iraq could be assisted by a well-coordinated programme of action for capacity building by the donors, international organizations and other development partners.

9. This study did not examine the technical growth potential in domestic food

production, except to note the potential for productivity increases as achieved in neighboring countries. A key issue in domestic production is the role of input subsidies to promote higher outputs, and thus enhancing profitability of production. Another option to achieve this is appropriate output pricing. Liberalization of food marketing (while maintaing a safety net to protect the vulnerable) is likely to bring output prices closer to their border prices, which are likely to be higher than the depressed prices resulting from large scale distribution of subsidized food to everyone. More research is needed to assess the impact of input subsidy and output pricing changes on domestic production, and more importantly on the food security of the small farmer populations and the rural population that depends on agriculture for their incomes. A requirement for obtaining harmonized food policy is to have in place an institutional mechanism for effective coordination of various sector interests.

References

Blyn, G. 1989. Price series correlation as a measure of market integration. Indian Journal of Agricultural Economics, 28, no 2

Center for Strategic International studies. February 2003. A Wiser Peace: An Action Strategy for a Post-Conflict Iraq. Central Bank of Iraq. December 2003. Statistical Bulletin-Special Issue. Economic Intelligence Unit. July 2003. Iraq Country Profile. Food and Agricultural Organization. FAO STATS data base Food and Agriculture Organization. July 1993. FAO-WFP Crop and Food Supply Assessment Mission to Iraq. Food and Agriculture Organization. October 1997. FAO/WFP Food Supply and Nutrition Assessment Mission to Iraq Food and Agricultural Organization. May 2003. FAO-WFP Assessment of the Food and Nutrition Situation in Iraq. Food and Agriculture Organization. May 2003 (2). Towards Sustainable Agricultural Development in Iraq: The Transition from Relief, Rehabilitation and Reconstruction to Development Food and Agricultural Organization. September 2003. Special Report: FAO/WFP Food Supply and Nutrition Assessment Mission to Iraq. Food and Agricultural Organization. September 2003 (2). Food Supply and Nutrition Assessment Mission to Iraq – Technical Report on Nutrition. Goletti F, Badiane, O and Jayashree Sil, 1994. Foodgrain marketing under market reforms in Egypt. MSSD discussion paper, IFPRI Timmer, Peter C. 1974. A model of rice marketing margins in Indonesia. Food Research Institute Studies Vol. 13, no. 2 UNDG-World Bank. October 2003. Reconstructing Iraq’s agriculture, water resources and food security system. A Joint Report by FAO, World Bank and WFP.

UNICEF. 2001.Multiple Indicator Cluster Survey for the Year 2000.Preliminary Report. UN Office of the Iraq Programme. Oil-for-Food Programme. www.un.org/Depts/oip UN Office of the Iraq Programme. Oil-for-Food Programme. US Library of Congress, “Iraq-Agriculture” (http://countrystudies.us/iraq/57.htm) US Library of Congress .Federal Research Division. Country Studies: Iraq. website, www.countrystudies.us/Iraq/. US Agency for International Development. June 2003. Agriculture Reconstruction and Development Program for Iraq. World Food Programme. November 2001.OIL For Food-Food Basket Adequacy Assessment Survey. Iraq-North Coordination Office. World Food Programme. 2002. Iraq Road and Transport Review 2002. World Food Programme. 2003. Options for modification of PDS. Mimeograph World Food Programme. March 2004. “Survey of Iraq’s food marketing characteristics using WFP’s Food Monitors as key informants”. WFP Iraq Country Office Planning Unit. Unpublished data.

Production (Mt) Yield (Kg /Ha) Area Harv (Ha)1961 857,350 779 1,100,0001962 1,085,494 775 1,400,0001963 488,254 574 850,0001964 807,013 620 1,300,0001965 1,005,288 718 1,400,0001966 825,955 635 1,300,0001967 860,000 637 1,350,0001968 1,537,000 1,024 1,500,0001969 1,183,000 910 1,300,0001970 1,236,000 882 1,400,0001971 822,300 867 948,2501972 2,625,000 1,374 1,910,0001973 957,000 827 1,156,0001974 1,339,000 819 1,633,3251975 845,400 600 1,407,6501976 1,302,400 868 1,499,3001977 695,700 811 857,6001978 909,800 608 1,495,6501979 684,800 635 1,077,8001980 975,600 710 1,373,9751981 902,000 756 1,192,5001982 965,100 826 1,168,4501983 841,000 705 1,191,3251984 470,900 955 492,7001985 1,405,500 912 1,540,2251986 1,036,000 835 1,240,0001987 722,200 840 858,9751988 929,200 892 1,041,1251989 491,400 837 586,8501990 1,195,800 1,012 1,180,5751991 1,476,400 805 1,832,7751992 1,006,000 599 1,677,0001993 1,187,000 589 2,013,0001994 1,342,000 743 1,806,0001995 1,236,000 805 1,535,0001996 1,300,000 866 1,500,0001997 1,063,000 756 1,405,0001998 1,130,000 807 1,400,0001999 800,000 615 1,300,0002000 384,000 320 1,200,0002001 900,000 737 1,220,0002002 1,000,000 740 1,350,000

2002(1) 1,856,000 1,031 1,800,0002003(1) 2,553,000 1,418 1,800,000

Appendix Table 1: Iraq Wheat Production, Yield and Area (1961-2003)

Wheat

Mission t0 Iraq (September 2003)Source: FAOSTATS Database

(1) Adjusted Data (FAO-WFP Crops, Food Supply and Nutritional Assessment

Years Production (Mt) Yield (kg/Ha) Area Harv (Ha)1961 68,453 2,738 25,0001962 113,100 2,827 40,0001963 143,216 2,603 55,0001964 184,350 2,836 65,0001965 178,434 2,745 65,0001966 182,087 2,801 65,0001967 314,921 3,057 103,0001968 353,500 3,243 109,0001969 318,000 3,000 106,0001970 180,200 2,402 75,0001971 306,700 2,811 109,0751972 268,000 2,851 94,0001973 156,620 2,448 63,9601974 69,290 2,205 31,4151975 60,540 2,026 29,8801976 163,360 3,117 52,4071977 199,240 3,138 63,4851978 172,000 3,143 54,7171979 157,800 2,688 58,7001980 166,900 3,009 55,4501981 162,200 2,976 54,5001982 163,400 2,835 57,6251983 110,500 2,259 48,9001984 108,700 2,776 39,1501985 148,900 2,834 52,5251986 141,200 2,812 50,2001987 195,900 2,798 70,0001988 140,600 2,785 50,4751989 231,800 3,186 72,7501990 228,800 2,888 79,2001991 189,103 2,200 85,9251992 180,000 1,894 95,0001993 206,000 1,872 110,0001994 383,000 2,349 163,0001995 315,000 1,800 175,0001996 270,000 2,250 120,0001997 244,000 2,016 121,0001998 300,000 2,343 128,0001999 180,000 1,384 130,0002000 60,000 6,000 100,0002001 128,000 1,280 100,0002002 90,000 900 100,000

2002(1) 150,000 1,363 110,0002003(1) 150,000 1,304 115,000

Appendix Table 2: Iraq Paddy Production Yield and Area(1961-2003)

Rice Paddy

Mission t0 Iraq (September 2003)Source: FAOSTATS Database

(1) Adjusted Data (FAO-WFP Crops, Food Supply and Nutritional Assessment